What is Financial Modeling? Explanation & Setup of a Financial Model

We learn about financial modeling by discussing the uses of financial models & building one from scratch. Downloadable template included.

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Strangely, students around the world graduate from universities with finance degrees every year without knowing how to build financial models - the most fundamental part of working in finance.

I created this video to break a financial model down in a simple way so that you will be able to understand and build them yourself.

So, what is financial modeling, and what's the best way to learn it?

Financial modeling is pretty simple. You just need to understand the basic components of a financial model so that you can collect all the information and build one.

The main sections are revenue (sales), direct costs (cost of goods sold), fixed costs (operating expenses), and profit margins. We focus on these four areas as we walk through a step-by-step example of building a real financial model.

SECTIONS:
0:22 what is financial modeling
1:18 what do we use financial models for
2:41 components of a financial model
4:59 how to build a financial model step-by-step
5:47 projecting revenue in an income statement
10:37 projecting cost of goods sold
15:02 projecting operating expenses
17:37 calculating gross profit, operating profit, and net income

I hope that you can now understand financial modeling and how financial models are built. If you have questions - please leave comments below and I'll try to help. Cheers!

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