How can women prepare a financial model?
A financial model is a tool that is built in spreadsheet software such as MS Excel to estimate a business's financial performance into the future. The prediction is typically based on the company’s historical performance, assumptions about the future, and requires preparing an income statement, balance sheet, cash flow statement, and supporting schedules. More advanced types of models can also be built such as discounted cash flow analysis (DCF model), leveraged buyout (LBO), mergers and acquisitions (M&A), and sensitivity analysis.
What is financial modeling?
Financial modeling is the process of making a summary of a company's expenses and earnings in the form of a spreadsheet that can be used to estimate the effect of a future event or decision.
A financial model has many applications for company executives. Financial analysts use it to analyze and predict how a company's stock performance might be affected by future events or executive decisions.
How is a financial model created?
To create a financial model, you must include sections on assumptions and drivers, an income statement, a balance sheet, a cash flow statement, supporting schedules, valuations, sensitivity analysis, charts, and graphs.
What is the use of a financial model?
The financial model is used for decision making and performing financial analysis, either inside or outside of the company. Inside a company, executives use financial models to make decisions about raising capital, making assets, growing the business organically like opening new stores, entering new markets, etc, selling or divesting assets and business units, planning for the future years ahead, allocating capital, valuing a business, financial statement analysis, and management accounting.
What are the professions that build a financial model?
There are various types of professionals who build financial models. The most common professions are investment banking, equity research, corporate development, FP&A, and accounting. Bankers use financial modeling in sales and trading, equity research, and both commercial and investment banking, public accountants use it for due diligence and valuations, and institutions apply financial models in private equity, portfolio management, and research.
How can a woman learn financial modeling?
In most of the companies, men are asked to make financial models as they are believed to be capable of thinking about finances and profits. Women too can make financial models because all it takes is analysis. Women can learn finance modeling by practice. It takes years of experience to become an expert at preparing a financial model and you really have to learn it by practicing. Reading equity research reports is a helpful way to practice, as it gives you something to compare your results to. You can also take a mature company’s historical financials, build a flat-line model into the future, and calculate the net present value per share. And apart from all these you can take professional financial modeling training.
How can a woman prepare a financial model?
Women can prepare a financial model by seeing the past results and assumptions and reversing the assumptions for the historical period by calculating things like revenue growth rate, gross margins, variable costs, etc.Then you are required to calculate the top of the income statement with revenue, COGS, gross profit, and operating expenses down to EBITDA and depreciation, amortization, interest, and taxes. Then you can start preparing the balance sheet, supporting schedules, income statement, cash flow statement, charts and graphs. Then when the model is completed, stress test it is using scenarios and seeing that the model is accurate or not.
How can a financial model be validated?
A financial model may be sent to an outside party to validate the information it contains as errors in financial modeling can cause expensive mistakes. Banks and other financial institutions, project promoters, corporations seeking funds, equity houses, and others can request model validation to reassure the end-user that the calculations and forecasting within the model are correct and that the results produced by the model are reliable.
Where are the women in financial modeling?
There has been a dearth of female workers in financial management and investment services. There are comparatively few women role models and mentors in finance than men and this may account for some of the gender disparity in top roles. Women account for less than 10% of senior roles in venture and private equity firms
The gender gap is decreasing in MBA programs, but women account for only 16% of finance faculty at top business schools.
Though the percentage of men and women entering into business is the same, men are quick in getting top positions. There are a few reasons why women may not be coming to the top ranks as quickly as men are. First reason is a lack of role models, women entering the field may find the path more challenging to navigate or may not even know there is one if they don't have another woman to look upto. Some women face difficulty in maintaining work-life balance, while others stated that they have lack of manager support.
Conclusion
A financial model is a tool that is built in spreadsheet software such as MS Excel to estimate a business's financial performance into the future. To create a financial model, you must include sections on assumptions and drivers, an income statement, a balance sheet, a cash flow statement, supporting schedules, valuations, sensitivity analysis, charts, and graphs. Women can learn finance modeling by practice. It takes years of experience to become an expert at preparing a financial model and you really have to learn it by practicing. Reading equity research reports is a helpful way to practice, as it gives you something to compare your results to.