Financial Modelling [Day 1]


Day 1 covers the core concepts and practice of financial modelling. During this day you will:

  • Review and apply the spreadsheet functions and tools that are the building blocks of efficient and well-presented financial models.
  • Cover the finance and accounting concepts that underlay financial modelling.
  • Learn the objectives, principles and methods of financial modelling.
  • Design and construct models that illustrate and apply the techniques of financial modelling.

The second day covers more advanced modelling concepts and practice.

  • About
  • Facilitator
  • Outline
  • Content
  • Register

About the course

A financial model is a representation of the present and future states of a financial entity. A model is a dynamic creation and its outcomes are all action-related: Deciding, reporting, analysing, valuing - these are just some of the outcomes of models. Modelling provides valuable insights into the behaviour and performance of the entity being modelled. A model can be vital repository of the data, assumptions, inter-relationships and dynamics of a financial entity.

Financial modelling requires accounting, finance and spreadsheet skills. Design, presentation and communication skills are also important.

This course shows how modelling is done and how models are used. It also covers the finance, accounting, spreadsheet and design skills that underlay good modelling practice.

About the facilitator

This course's facilitator is Alex Palfi. Before joining Tykoh, Alex had ten years of experience with Macquarie Group in quantitative finance and in presenting workshops internationally. He has presented courses in financial modelling, financial mathematics, financial programming, valuation, and option pricing and risk management in Europe, North and South America, Africa, Asia and in Australia & New Zealand.

Alex has worked in Investment banking, commercial banking and software development industries. Alex's university qualifications are in engineering. He obtained Bachelors and Masters degrees in Electrical Engineering from the University of Canterbury in New Zealand.

Audience

This course is aimed at those who wish to learn the principles and practice of financial modelling for the purpose of designing or maintaining their own models.

Level

This is at an intermediate level.

Duration

This is a two day course. The first day covers the core concepts and practice of financial modelling. The second day covers more advanced modelling concepts and practice.

Prerequisites

You will need Excel skills at an intermediate level. You should be able to use formulae, and understand how cells are referenced (e.g. $A1:$B5). You should understand basic accounting concepts like balance sheets and profit and loss and finance concepts like discount rates and internal rate of return.

Format

The course has a "hands-on" format. Each participant works with a laptop for the major part of the course on practical financial spreadsheet topics.

Following is an overview of the content.

Finance concepts and financial functions
Financial models must adhere to underlying finance principles. These principles are reviewed in this section. Also covered are the spreadsheet functions needed to perform financial calculations. These are the principles and functions covered:
  • Discount rate and its determinants
  • Present and future value
  • Internal rate of return
  • EFFECT & NOMINAL functions
  • PPMT, IPMT, PMT, RATE, PV,FV & NPER functions
  • NPV, XNPV, IRR & XIRR functions
Spreadsheet functions used in financial modelling
This section reviews the functions most commonly used in financial modelling and gives examples of their applications. These function groups are covered:

  • Arithmetic functions
  • Logical functions
  • Referencing functions
  • Aggregation functions
  • Date functions
  • Ranking functions
  • Error handling functions
  • Text functions
Spreadsheet tools and features used in financial modelling

Spreadsheets provide additional tools and features that are helpful in modelling.

The following tools and features are reviewed and applied:
  • Data tables
  • Charts and templates
  • Worksheet and workbook protection
  • Function Wizard
  • Auditing tools
  • Keyboard shortcuts
  • Formula evaluation / tracing and diagnosis
  • Hiding rows and columns and freezing panes
Accounting concepts that underlay financial modelling
Financial modelling rests on an accounting framework. This section reviews accounting principles and shows how a financial model can be implemented within an accounting framework. The following topics are covered.

Balance Sheet

  • Assets
  • Liabilities
  • Current and non-current assets and liabilities
  • Share capital and retained earnings

Income statement

  • Revenue, expenses and profit
  • Interest, tax and depreciation
  • EDITDA
  • EBIT
  • EBT and NPAT

Cash flow statement

  • Operations
  • Financing
  • Investment

Relationship between the statements

  • Income statement
  • Balance sheet
  • Cash flow statement
Objectives and outcomes of financial modelling

A financial model is a dynamic creation and its outcomes are all action-related: Deciding, reporting, analysing, valuing and risk assessing - these are just some of the outcomes of financial modelling. This section reviews the objectives and benefits of financial modelling.

Financial modelling design principles

A financial model should be easy to understand and clear to follow. It should be easy to extend. It should be error-free and as compact and responsive as possible. What design principles should the modeller follow to achieve these goals? The following are covered.

Structure of the model

  • Purpose and sequence of component worksheets
  • Flow of information through the model
  • Naming and conventions
  • Error and consistency checking
  • Summaries and charts
  • Separation of constants and formulae

Presentation of the model

  • Stylistic conventions
  • Formatting
  • Dimensioning of units
  • Scrolling and panes
  • User-interface elements
  • Documentation

Control of and access to the model

  • Cell, worksheet and workbook protection
  • Hiding formulae, rows, columns and sheets
  • Password protection

User interface to the model

  • Forms and controls
  • Data validation
Financial modelling applications and exercises

In this section a financial model of an enterprise is constructed according to the design principles covered earlier in the course. The model is used for the following purposes:
  • Modelling the current and future states of the enterprise
  • Examining the enterprises' behaviour under various scenarios
  • Determining its sensitivity to critical revenue and cost drivers
  • Valuing the cash flows it generates and determining its overall value

Register

You can register your interest for any of our courses by selecting the "Register" menu item at the top of this page.

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