Definition

financial modeling

Financial modeling is the construction of spreadsheet models that illustrate a company's likely financial results in quantitative terms. Financial models can simulate the effect of specific variables so that the company can plan a course of action should they occur.

Categories of financial modeling include cash flow forecasting, what-if scenario planning and weighted average cost of capital (WACC) calculations. Microsoft Excel spreadsheets are the most commonly used tool for building financial models. However, dedicated software products are available that offer financial modeling capabilities.

This video from Wall Street Prep shows how financial modeling can be used to create a cash flow statement.

This was last updated in January 2014

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