Types of financial models Examples

An overview of financial models is a critical examination of the journey of any business owner. Engaging in financial modeling allows for example to predict the future of a company, which is particularly useful in terms of start-up performance. However, there are quite diverse examples of financial modeling. And they come with a wide range of uses. In this sense, they basically offer entrepreneurs different choices to create various financial representations and calculations of their businesses or potential transactions.

To help you determine what works best for you and your business, we’ll give you an overview of financial modeling as well as a definition of financial modeling. Of course, we will also review the 5 most common financial modeling examples. And take a look at our financial model template for startups if you ever need to give a presentation like this.

What is Financial Modeling?

Financial modeling is a calculation of the impact of an event on the future of a business. Typically, we use a spreadsheet for these and summarize several variables in these models to forecast the future performance of a business. The idea is that these docs allow startups to make decisions based on strong and quantitative reasons.

What do financial models include?

Financial modeling takes into consideration a company’s operations, accounting, and corporate finance, for example. These are used to estimate costs, especially for new projects. They can also help define the impact of a policy change or understand how a company’s actions might be affected. Additionally, they can help us track a company’s KPIs, such as gross and net margins. Yet financial modeling is also used to compare similar companies, for example.

Think of these tools as types of risk management. Models can improve how we analyze options and make suggestions. Such calculations help us to make projections of balance sheets, cash flows and even to establish calendars!

Now let’s move on to examples of the most common types of financial models. We know you’ve been looking for them.

5 most common types of financial models

– Discounted cash flow (DCF) model:

DCF is used to value a business based on its net present value of future cash flows. This means that the value of the firm can be considered equal to the sum of its expected future free cash flows. These are however reduced at an appropriate rate. And they frame how we assess the potential of an investment. These types of models are used in equity research, for example. It is also based on what is called a 3 statement model.

– Merger and acquisition (M&A) model:

The M&A evaluates 2 companies that are close. To track it, we need what is called an accretion and dilution analysis. The model first forecasts the two companies and then defines the range of the proposed purchase price. The objective of this model is to show the impact of the acquisition for each company. And it also compares them to the potential new business, which may end up being accretive or dilutive. Investment banking and business development are the ones that most often use this model.

– Leveraged buyout model (LBO):

A leveraged buyout speaks of acquiring a business with borrowed money. This is a very detailed and complex model that usually requires complicated debt schedules. Implying a high debt ratio, it may seem ruthless. Use it to make a public company private or to create part of an existing company. It can also assist in the transfer of private property.

– Sum of parts model:

This model is built by adding several DCF models, in fact. It is mainly used to value a company that has different units in various sectors. However, it can also help to revalue after a restructuring. Ultimately, what it does is add value to a business. And it does this by the value of its parts when acquired by another company. It adds the value of business units A, B and investments C to subtract liabilities from D. This allows you to determine the net asset value of a business.

– Option pricing model:

Financial modeling example number 5 is option pricing. There are several types of it, actually. Yet the two main ones are called binomial and Black-Scholes trees. One of the options it gives are contracts, which certify to the holder the right to buy or sell at a specified price. It is mainly used to evaluate models. And the goal is to set a theoretical value. They feed on known fixes, as well as forecasts. Based on pure mathematical formulas, they work like a calculator embedded in a spreadsheet.

Now imagine you had to get into financial modeling for your startup or business. In this case, you’ll likely save a lot of time with careful design if you resort to a preformatted financial model template. We promised to address this with you sooner, and we will deliver.

Related: Keep Track of All Your SaaS Spending with Monthly

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The best financial model template

We design a lot of our content with startups, like ours, in mind who could very well need a helping hand to make their new business a success. This model of financial model was built in the same way. Stay tuned to our section below, and you will also find a spreadsheet that has helped our business become profitable.

As for the template, we always recommend resorting to them when they are available. These slides give you structure. And they also save you valuable time by reducing the time it takes you to prepare another presentation. Templates also help remember everything that needs to go into a specific game so you never miss crucial details.

Our financial model model estimates selling, general and administrative (SG&A) expenses, assets owned by a business (WK-CAPEX), cost of goods sold (COGS), as well as accurate revenue estimates and projections. It also includes a standard financial statement sheet, so take a look to make your best financial decisions with a solid foundation of business calculations and forecasts.

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A top notch financial modeling tutorial

Want to know more about this topic? We understand you. Check out our video tutorial. Called Financial Modeling 101: Tutorial and Model, this resource provides much more information on this topic. It can help your business vision with great choices that secure and support growth.

In this document, we give you the means to:

  • calculate your track
  • estimate how fast you can evolve
  • know how to deploy efforts more quickly

The above comes with one-time access to Slidebean’s spreadsheet, of course. This is the one we have been using for over 5 years to run our (profitable) operation.

And we also offered an exciting read called Financial Modeling 101. Click on it to learn more. We hope you enjoy it! Let us know if we can help you in any way.

Download our model

Robert D. Coleman