financial model

Financial forecasting (also known as financial model or financial projection) is the process of estimating or predicting how a business will perform financially in the future.

A 3 statement model links the income statement, balance sheet, and cash flow statement into one dynamically connected financial model. It is prepared in excel format and the integrated 3-statement financial model forecasts a company’s income statement, balance sheet and cash flow statement.

While accounting enables us to understand a company’s historical financial statements, forecasting those financial statements enables us to explore how a company will perform under a variety of different assumptions and visualize how a company’s operating decisions (i.e. “let’s reduce prices”), investing decisions (i.e. “let’s buy an additional machine”) and financing decisions (i.e. “let’s borrow a bit more”) all interact to impact the bottom line in the future.

A well-built 3-statement financial model helps insiders (corporate development professionals, FP&A professionals) and outsiders (institutional investors, sell side equity research, investment bankers and private equity) see how the various activities of a firm work together, making it easier to see how decisions impact the overall performance of a business.

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