What is financial modeling?

Financial modeling is a structured way to represent a company's financial performance through numerical analysis. It involves creating a detailed, often spreadsheet-based framework that incorporates a variety of financial inputs, such as revenue, expenses, capital structure, and cash flows. This model allows stakeholders to forecast future financial performance based on different scenarios and assumptions, facilitating better decision-making.

The significance of financial modeling lies in its ability to showcase the financial health and viability of a business or project. It aids in understanding how changes in one variable may impact overall financial outcomes, which is essential for tasks such as investment analysis, company valuation, budgeting, and strategic planning. By offering a clear numerical representation of a company's performance, it provides valuable insights for management and investors alike, helping them make informed decisions regarding capital allocation, resource management, and growth opportunities.