There is a significant difference between knowledge – knowing something – and being capable of applying the knowledge.
Of course, you can’t apply the knowledge if you don’t fully comprehend the fundamental principles and the context in which it needs to be applied!
Goalfix has recently experienced this very issue.
Based on the results of a survey of financial modellers, past and future, we recently introduced a comprehensive course, with detailed notes and examples, functions and formulas, to provide aspiring modellers with an extensive overview of the key financial principles and practices involved in building efficient, effective models.
The course covered – in depth – the following topics:
- Financial Modelling Overview
- Modelling with Excel – a detailed list of all Excel functions necessary to build models
- Financial Statements – building sequence, Income statement, Cash Flow statement, Balance sheet and validation
- Introduction to Corporate Finance – terminology, metrics and key ratios
- Analysing model results
- Comprehensive review of corporate financial ratios, and
- Four comprehension tests to confirm the understanding of the content.
All in all, a grand tour of financial modelling!
Following the period of self study, delegates attended a 2-day of live, instructor led, interactive webinar.
Simply put, to test the efficacy of the course and the validity of the concept.
The results, while being encouraging, reinforced a key principle which Goalfix has practiced religiously for years in its training courses. – namely the principle of applied learning.
Whilst understanding the mechanics of the various Excel functions essential for successful model building, what delegates lacked was the application of the functions – how to apply the functions -i.e. in the context of the model, what result must the formula return and what input cells (and other functions) are involved.
And, without sounding like a stuck record, the only real effective way to overcome this challenge is via live, instructor-led, interactive training – either face-to-face or webinar based.
Financial models have a well-defined structure and sequence. Models are logical, sequential and results are driven by the interaction of key assumptions related to timing, revenues, costs, capex , funding, working capital, tax, inflation and interest.
The illustration below is a diagrammatic representation of a model structure.
Based on extensive experience in model building, Goalfix recommends the following initial steps:
- Reading and assimilating the business case of the project as contained in the model specification – having an in depth understanding of the model environment
- Understanding the model objectives and the key outputs required
- Conceptualising the model structure in terms of model sheets and schedules necessary to provide the output
- Deciding on the time series of the model
- Creating a sheet template to ensure consistency in all sheets
In a recent podcast broadcast by the Corporate Finance Institute (CFI)– Duncan McKeen – financial modelling guru, made the following observations:
- Conceptualising (visualising) the model design is essential, remembering that models are decision making tools
- What important decisions are we planning to make – i.e. what is the purpose of the model
- Flowing from b. above, what key outputs are required
- Then back solving to define the model components which will deliver the results
So, in essence, we are in total agreement with CFI.
If you want to advance your career, add a much-needed capability, become a true financial professional, give us a call or send us a mail.
We will be delighted to discuss your needs and suggest an appropriate course of action
Colin Human CA(SA)