5 Most Common Types Financial Modeling Templates?
Financial modeling is a tool used to project the financial performance of the business in the future. The decision-makers of the company mostly utilize it as the evaluating factors if they are going to pursue a particular plan. Financial modeling is employed to calculate the cost of a new project, merger and acquisition, buyouts, creating a budget, and evaluation before making the initial public offering. Let's have a look at the five most common types of financial modeling templates.
1. Three Statement Model. As the name implies, this model is composed of the three financial statements, which are the income statement, cash flow statement, and the balance sheet. These three statements are interconnected to one another and are used to analyze the financial performance of the company. Modifying the assumptions will cause changes in the entire model.
2. Discounted Cash Flow (DCF) Model. The Discounted Cash Flow model is built from the Three Statement Model and uses the time-value of money. DCF computed by using a discount rate, mainly the Weighted Average Cost of Capital, in discounting the future cash flow to arrive at the Net Present Value. By using this model, we can project the NPV, which is more accurate in terms of the value of money since we know that money decreases its value over time. If the NPV is higher than the investment cost, then the project is viable since you already exceeded the cost of capital.
3. Internal Rate of Return (IRR) Model. The IRR Model uses same cash flow model as the DCF model but instead of solving for the NPV, it calculates the Internal Rate of Return. The model is mostly used in Project Finance, for Investment Projects which require a financial feasibility study. Another variation of this model is to use for investor specific return calculations taking into account the terms of their investment agreements, e.g how much money they have to put in and how much money they can expect to take out.
4. Merger Model (M&A). The Merger Model is advanced in evaluating the effect of the merger to the increase/decrease of the earnings per share after the transaction using the accretion/dilution analysis. The model works the same way as a DCF model but consolidates a target company with a the acquiring company and also includes the effect of synergies.. The focus of the analysis lies in figuring out if the acquisition will increase the value of the acquirer including the target or not.
5. Leveraged Buyout (LBO) Model. An LBO model is an advanced financial model mostly used by Private Equity Professionals. It focuses on the expected IRR of an investment in private equity business cases who use a high amount of financial debt. The models seeks to figure out how much can be used for the acquisition, if the company will be able to service that debt – also under stress test scenarios –and by how much the IRR of the investors will change when using financial debt.
These financial modeling templates can be very helpful to better understand business and investment cases depending on the required scenarios. To create these models, you don't have to build from scratch since there are many available templates online that you can utilize. You can access industry-fitted financial models that are reliable and easy to use in efinancialmodels.com.
2. Discounted Cash Flow (DCF) Model. The Discounted Cash Flow model is built from the Three Statement Model and uses the time-value of money. DCF computed by using a discount rate, mainly the Weighted Average Cost of Capital, in discounting the future cash flow to arrive at the Net Present Value. By using this model, we can project the NPV, which is more accurate in terms of the value of money since we know that money decreases its value over time. If the NPV is higher than the investment cost, then the project is viable since you already exceeded the cost of capital.
3. Internal Rate of Return (IRR) Model. The IRR Model uses same cash flow model as the DCF model but instead of solving for the NPV, it calculates the Internal Rate of Return. The model is mostly used in Project Finance, for Investment Projects which require a financial feasibility study. Another variation of this model is to use for investor specific return calculations taking into account the terms of their investment agreements, e.g how much money they have to put in and how much money they can expect to take out.
4. Merger Model (M&A). The Merger Model is advanced in evaluating the effect of the merger to the increase/decrease of the earnings per share after the transaction using the accretion/dilution analysis. The model works the same way as a DCF model but consolidates a target company with a the acquiring company and also includes the effect of synergies.. The focus of the analysis lies in figuring out if the acquisition will increase the value of the acquirer including the target or not.
5. Leveraged Buyout (LBO) Model. An LBO model is an advanced financial model mostly used by Private Equity Professionals. It focuses on the expected IRR of an investment in private equity business cases who use a high amount of financial debt. The models seeks to figure out how much can be used for the acquisition, if the company will be able to service that debt – also under stress test scenarios –and by how much the IRR of the investors will change when using financial debt.
These financial modeling templates can be very helpful to better understand business and investment cases depending on the required scenarios. To create these models, you don't have to build from scratch since there are many available templates online that you can utilize. You can access industry-fitted financial models that are reliable and easy to use in efinancialmodels.com.
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