Financial Model

A financial model is a mathematical representation of a company’s financial performance used to forecast future outcomes. These models are built using financial data and assumptions to simulate how changes in key variables affect a company’s results. Financial models are widely used in decision-making processes, including investment analysis, valuation, and strategic planning. Common types of financial models include discounted cash flow (DCF), sensitivity analysis, and scenario planning.

Example

An investment analyst builds a DCF model to evaluate a company’s potential value by estimating future cash flows and discounting them to present value.