How Useful are Financial Models: The Base Case

1321 Words3 Pages
bulb-icon

Recommended: Theory on financial statements analysis

INTRODUCTION
Financial Model is defined as the model that captures the future operating, investing and financing activities that determines the future profitability, financial position and risk of a business venture (MacMorran, 2009). It is a decision making tool regarding investment, forecasting and valuation of a project or a company. It is an important element in investment decisions which helps to regulate financial activities. According to Janiszewski S. (2011) the importance of financial modelling is to reflect/represent the forecasted financial performance of a business venture. Financial models are mainly used generally in compiling financial projections for a company based on discounted cash flow (DCF) approach and non-valuation financial projections. These are used for management information or accounting purpose.
Financial modelling is practically applied in Corporate finance, Investment banking, Equity Research and Accounting Profession. A financial model can be used in Business Valuation, Project Finance, Mergers and Acquisition, Risk Modelling, Leverage buy out Analysis, Management Decision Making Process, Capital Budgeting, Forecasting, Equity Research and Valuation, Option Pricing and Financial Statement Analysis.
Financial planning model tend to rely on accounting relationships and not financial relationships. The three basic elements usually valuated include the cash flow size, risk and the timing. It does not produce meaningful clues about what strategies are to be put in place, to increase the time value of money instead the association of debt-equity ratio and the firm growth (David Hillier, 2011).
Financial model is used in this report to assess the viability of the computer printer project based on forecast...

... middle of paper ...

...yson, J. R., 2010. Accounting for Non-accounting Students. 8th ed. s.l.:Pearson Education Limited.
Horcher, K. A., 2005. Essentials of Financial Risk Management. Canada: John Wiley & Sons, Inc..
Lumby, S. & Jones, C., 1999. Fundamentals of Investment Appraisal. 6th ed. London: Thomson Learning.
Lumby, S. & Jones, C., 2001. Fundamentals of investment Apraisal. 1st ed. London: Thomson Learning.
MacMorran, J., 2009. Postlethwaite & Netterville. [Online]
Available at: http://www.pncpa.com/admin/files/resources/Financial_Modeling_and_Forecasting.pdf
[Accessed 21 4 2014].
McLaney, E., 2003. Business Finance: Theory and Practice. 6th ed. Harlow England: Pearson Education Limited.
Richard Pike, B. N., 2003. Corporate Finance and Investment: Decisions and Strategies. 4th ed. England: Pearsons Education.
Ryan, B., 2007. Corporate Finance and Valuation. s.l.:Thomson Learning.

Show More
Related

  • Eskimo Pie Corporation

    1314 Words  | 3 Pages

    The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.

    Read More

  • Are Theories of Dividend Payment Applicable in the Real World

    1490 Words  | 3 Pages

    Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.

    Read More

  • A Briefing of the Purchasing Power Parity (PPP)

    1861 Words  | 4 Pages

    Robert J. Hodrick Geert Bekaert, 2013. International Financial Management. International ed of 2nd revised ed Edition. Pearson Education Limited.

    Read More

  • Debt vs Equity When Starting a Business

    674 Words  | 2 Pages

    Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financing have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business. Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a person or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors.

    Read More

  • Portfolio Analysis and Investment

    987 Words  | 2 Pages

    William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998

    Read More

  • The Importance of Capital Budgeting

    1818 Words  | 4 Pages

    Present theoretical arguments for the choice of net present value as the best method of investment appraisal;

    Read More

  • Essay On Capital Asset Pricing Model

    1344 Words  | 3 Pages

    The following essay will expand on the usefulness and flaws of CAPM and other asset evaluation frameworks and in the end showing that despite all the evidence against CAPM it is still a useful model for determining asset investments.

    Read More

  • Exhange Risk Faced by Multinational Corporations (MNCs)

    1553 Words  | 4 Pages

    Brealey, Richard A., Marcus, Alan J., Myers, Stewart C. 1999, Fundamentals of Corporate Finance, 2nd edn, Craig S. Beytien, USA.

    Read More

  • The Importance of Proper Asset Allocation

    1614 Words  | 4 Pages

    Hensel, C. R., Ezra, D., & Ilkiw, J. H. (1991). The Importance of the Asset Allocation Decision.

    Read More

  • Discounted Cash Flow Valuation

    1092 Words  | 3 Pages

    Today financial corporate managers are continually asking, “What will today’s investment look like for the future health of the company? Should financial decisions be put on hold until the markets become stronger? Is it more profitable to act now to better position the company’s market share?” These are all questions that could be clearly answered if the managers had a magical financial crystal ball. In lieu of the crystal ball, managers have a way of calculating the financial risks with some certainty to better predict positive financial investment outcomes through the discounted cash flow valuation (DCF). DCF valuation is a realistic approach, a tool used, to “determine the future and present value of investments with multiple cash flows” over a particular period of time which is incurred at the end of each period (Ross, Westerfield, & Jordan, 2011). Solutions Matrix defines DCF as a “cash flow summary adjusted so as to reflect the time value of money (The Meaning of Discounted Cash Flow, 2014).” The valuation of money paid or rec...

    Read More

  • Cash Management

    1080 Words  | 3 Pages

    Block, S. B., & Hirt, G. A. (2005). Foundations of financial management. (11th ed.). New York: McGraw-Hill.

    Read More

  • Importance Of Investment Analysis

    750 Words  | 2 Pages

    Finance can be regarded as the core of the modern business market, and investment analysis is an important role that is broadly carried out by investors for their investment decisions. Investment analysis is defined as the study of how an investment is likely to perform and how suitable it is for a given investor, thus being the key to any sound portfolio management strategy. Moreover, it is the analysis of past investment decisions through looking back at previous investment decisions and the processes of making those decisions. Through this analysis, investors can look make optimal decisions for their specified investment. Particularly with the recent economic recession, investment analysis is proving to play an important role in the world of finance. All things considered, I have no doubt MSc Investment Analysis can quench my thirst of knowledge in this field.

    Read More

  • Financial Theories And Strategies

    1533 Words  | 4 Pages

    Financial theories are the building blocks of today's corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment. Many of these theoretical concepts such as general equilibrium analysis, information economics and theory of contracts are firmly rooted in classical Microeconomics" (Oaktree, 2005)

    Read More

  • Features Of Management Information Systems MIS

    1563 Words  | 4 Pages

    The information that has for financial department will determine the budget and the planning for the organization. In establish or development for the organization, the financial information that gathers will determine the size of the company.

    Read More

  • Kotak Mahindra Annual Report Analysis

    1724 Words  | 4 Pages

    Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and is prepared by professionals (financial analysts), thus providing them with the basis in making investment decisions.

    Read More

More about How Useful are Financial Models: The Base Case

Open Document