FINANCIAL MODELLING: TECHNIQUES TO MASTER

Financial modelling is much more than just a technique: it is a veritable toolbox that uses a variety of methods and models to assess risks, optimise resources and make sound investment decisions. A veritable compass for guiding companies through a complex and uncertain environment, this essential predictive tool deserves a closer look to understand its full scope and applications.

WHAT IS FINANCIAL MODELLING ?

Financial modelling is a central analytical tool in the strategic decision-making process of companies. It is defined as a mathematical representation of the financial aspects of an organisation, project or investment, constructed from historical data and assumptions about the future.

In practical terms, this process involves developing models, often using spreadsheets or specialist software, to simulate different scenarios and assess their financial impact. These simulations make it possible to anticipate the potential results of strategic decisions, such as launching a new product, acquiring a company or restructuring debt.

Financial modelling is based on a rigorous methodology. It incorporates key variables - costs, revenues, cash flows, discount rates - to build reliable projections. This analytical work is essential for identifying risks, optimising resources and guaranteeing the profitability of the initiatives envisaged.

Financial modelling can also be used as a communication tool, enabling managers, investors and other stakeholders to clearly visualise the financial implications of strategic choices. In this way, financial modelling combines technical precision with the ability to inform decisions in an uncertain and competitive environment.

Financial modelling has a wide range of applications, thanks to its ability to provide detailed analyses and reliable projections.:

Business valuation

Used for mergers, acquisitions or fund-raising, modelling can be used to determine the value of a company based on discounted cash flows (DCF), market comparables or previous transactions.

Project viability analysis

Before launching a new product or service, modelling assesses the costs, expected revenues and break-even point, ensuring a clear view of the opportunities and associated risks.

Cash flow management

Companies use modelling to anticipate their cash requirements, taking into account cash inflows and outflows, in order to maintain optimum solvency.

Budget planning and forecasting

As part of financial management, modelling can be used to create budget forecasts and simulate various economic scenarios to better adapt to market uncertainties.

Optimising financing structures

By analysing the costs associated with different financing methods (equity, debt), modelling helps you to choose the most advantageous solution for your business.

Risk management

Companies can identify and assess financial risks, such as fluctuations in exchange rates or commodity prices, and put in place appropriate mitigation strategies.

Investment performance monitoring

Once a project or acquisition has been implemented, financial modelling can be used to measure actual performance against initial projections, facilitating any necessary adjustments.

FINANCIAL MODELLING TOOLS TAUGHT AT EDC PARIS

Financial modelling is an essential skill for finance professionals, enabling them to analyse and forecast the financial performance of companies. At EDC Paris Business School, several tools and techniques are taught to help you master this skill.

Excel for financial models
Microsoft Excel remains the tool of choice for creating financial models. Its flexibility and power make it an indispensable ally for structuring data, performing complex calculations and presenting financial projections. Students will learn how to use Excel to build robust models, including projected financial statements, sensitivity analyses and investment valuations. Mastery of Excel's advanced functions, such as pivot tables, complex formulas and macros, is also included, ensuring the ability to develop accurate and effective models.

Scenario analysis techniques
Uncertainty is inherent in the business world. This is why EDC Paris Business School focuses on scenario analysis techniques, which enable students to assess the impact of different assumptions on financial performance. Students learn to construct optimistic, pessimistic and realistic scenarios, and to analyse their effects on a company's cash flow, profitability and solvency. This approach helps to identify potential risks and develop mitigation strategies, thereby strengthening the financial resilience of organisations.

DCF model (Discounted Cash Flow)
The DCF model is a fundamental method for assessing the intrinsic value of a company or project by discounting its future cash flows. At EDC Paris Business School, students are trained in this technique, learning how to estimate forecast cash flows, determine the appropriate discount rate and calculate net present value (NPV). This skill is crucial for investment decisions, mergers and acquisitions, and the evaluation of long-term projects.

EDC Paris Business School's Master's in Corporate Finance offers in-depth training in finance, focusing on key skills such as financial modelling, risk management and the development of financial strategies. The programme aims to train professionals capable of enhancing the financial efficiency of companies and managing complex budgetary processes.

THE IMPACT OF FINANCIAL MODELLING ON DECISION MAKING

Financial modelling plays a key role in the corporate decision-making process. By providing a clear, quantified view of the potential consequences of various strategic options, it helps to reduce uncertainty and guide managers towards more informed choices.

One of the major strengths of financial modelling is its ability to incorporate scenario analysis. By simulating different hypotheses - such as an increase in costs, a change in exchange rates or a change in market conditions - companies can assess the potential impact on their results and cash flows. This proactive approach enables them to identify future risks and develop appropriate strategies to mitigate them, thereby strengthening their risk management.

By clarifying the financial implications of each option, modelling enables a more judicious allocation of resources. For example, it helps determine whether a company should opt for debt or equity financing, or whether an investment should be deferred or adjusted. By optimising available resources, it helps maximise financial returns while respecting budgetary constraints.

In an environment where decisions have to be taken quickly, having an analytical tool such as financial modelling is a major asset. Managers can rely on accurate data and reliable projections to justify their choices to stakeholders, investors and partners. This structured process also facilitates collaboration and collective validation of the strategies to be adopted.

Finally, financial modelling is not limited to one-off decisions. It is also essential for drawing up medium- and long-term strategic plans, enabling companies to set realistic objectives, assess their performance and adapt to market changes. By incorporating external variables such as economic trends and technological advances, it offers a global perspective for steering the company towards sustainable success.

Financial modelling is an essential tool for guiding companies in their strategic choices. By providing a precise view of the financial implications, it enables them to make informed decisions and anticipate challenges with confidence. This analytical tool, combining rigour and projection, is an essential lever for steering companies towards performance and sustainability.