Creating a Revenue Model
February 12, 2025
Financial resources are scattered across the economy. This is the reason that there is a need for a financial system that can enable the timely deployment of these resources across different parts of the economy at the right time. A well-functioning financial system is supposed to perform several functions. Some of these functions have been […]
“Cash is King” say the bigwigs on Wall Street. That is why the valuation of shares is done on the basis of discounted cash flow model rather than discounted earnings model. The price to cash flow ratio provides an analyst with a shortcut for finding companies that have been undervalued in comparison to their cash […]
Just like mergers and acquisitions, modeling for leveraged buyouts (LBOs) also requires special skill and knowledge. In this article, we will have a closer look at how leveraged buyouts work as well as how financial modeling techniques need to be adopted to meet the needs of investors indulging in LBO’s. What is a Leveraged Buyout? […]
Corporate income tax is collected when there is corporate income i.e. when the revenue collected by the corporation exceeds the expenses incurred by this. However, this need not always be the case. It is equally possible that a corporation may incur more expenses than it earns in revenue, thereby incurring a loss. This is truer […]
In the previous article, we understood what preferred shares are and also paid attention to their characteristic features. In this article, we will take the conversation forward by understanding the pros and cons of investing in preferred shares. An analysis of the commonly stated pros and cons helps investors evaluate the use of preferred shares […]
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.
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