Successful business owners know the value of using financial modeling to guide sound decision-making and forecast future outcomes. Financial models are used to project the performance of a company, evaluate business and financial investments, and help uncover and avoid potential risks. Below is a list of some key financial models that can bring powerful insights, predictability and better risk management to your business:
Cash Flow Model: Cash flow modelling enables companies to manage solvency more proactively. It improves the sustainability of the organization and it improves the understanding of the impact of drivers on cash flow, leading to better decisions. Modelling can improve reporting of cash flow performance against targets as well as identify future threats to the company’s cash flow.
Forecasting Model: In a forecasting model, you project your company’s revenue and earnings based on past and present data as well as using historical trends in the economy and even in your industry. Financial professionals, like a B2B CFO® will use forecasts to create a P&L projection for your business.
Discounted Cash Flow Model: Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment or company based on its future cash flows. The analysis determines the amount and quality of a future earnings stream and values the stream of earnings at a discount rate representing the company’s estimated cost of capital.
Comparable Company Analysis Model: A comparable company analysis is a process used to evaluate the value and performance of a company using the metrics of other businesses of similar size within the same industry and possibly within the same geographical area. Often referred to as benchmarking, this analysis provides insight into comparable key performance indicators (KPIs) compared to the industry overall and its competitors.
Mergers & Acquisition Model: A merger model is the analysis of the combination of two companies that come together through the M&A process. The analysis involves developing a proforma P&L and a balance sheet of the combined entity, identifying expected synergies in expense reduction and revenue enhancement. During a merger analysis, modeling is done to determine if the earnings per share (EPS) of the purchasing company will rise or fall, as well as to what degree change is expected. If the EPS will rise, the transaction is referred to as an accretive acquisition.
Financial modeling is one of the many tools employed by B2B CFO® Partners to assist our clients in increasing cash and company value.