Creating a Revenue Model
February 12, 2025
In our day-to-day life, we often use the term unicorn to refer to a mythical horse-like creature. In the year 2013, a venture capital investor named Aileen Lee borrowed the term to describe a particular kind of startup company. The unicorn term was used to describe the startup companies which were thought to be so […]
In the previous article, we studied what convertible notes are and how they are used in the context of financing a startup firm. The various terms and conditions which are generally a part of the convertible notes agreement were also explained along with the working of the note. However, before investors and founders make a […]
The traditional financial theory assumes that all investors are rational. Hence, they believe that all investors will reach the exact same conclusion with regard to investment decisions. However, we see evidence of the opposite happening in the marketplace. Even if different people have the same information, they tend to process the information differently and come […]
What is FinTech and how is it a Game Changer for BFSI firms? Anybody with a passing curiosity about the world of banking and finance and how technology plays an important role in the operations of such firms would surely have come across the term FinTech. Used in multiple contexts and with a wide variety […]
In the previous articles, we have already seen how the use of securitization has grown in sports. We also know that the increasing use of securitization is because of certain benefits that are provided by this method of raising capital. However, it is important to note that securitization is a part of structured finance. Structured […]
Making assumptions is an integral part of every financial calculation. It is a known fact that if the assumptions are modified even slightly, the numbers on the model tend to change dramatically. The problem is that financial modeler is forced to make several assumptions while creating the model. When several of these assumptions are being made, it is important to create a mechanism which allows these assumptions to be managed in a coherent and easy to understand manner.
Financial modelers often do not pay attention to the management of assumptions. Since it does not involve any calculations, this is often thought to be an administrative task and is often delegated to the newest member of the team. However, the reality is that managing the assumptions is probably the most crucial task in the financial modeling process. In this article, we will explain why this task is important and also explain the mechanism which is used to manage this process.
There are several assumptions which have to be made during the process of financial modeling. If these assumptions are not properly documented, then they will remain in the mind of the modeler. As a result, people using the model and interpreting its results will have no idea where the results came from.
Several things can go wrong while documenting the assumptions related to a financial modeling project.
The reality is that financial modeling is about predicting the future. Everyone’s beliefs about the future are bound to be different. These beliefs are presented to the end-user using the assumptions database. If the user does not agree with the assumptions, they can change the calculation themselves.
Your email address will not be published. Required fields are marked *