6 Factors That Would Help You Choose the Perfect Financial Modeling Firm

Financial modeling is one of the founding stones of equity research. It helps in gaining perspective of a company’s past performance and future prospects, as well as facilitates investment decision making. 

The 6 factors outlined below can help identify the best financial modeling firm for you for conducting Investment Research on a Company:


  1. Company’s reporting structure: A model is generally viewed in conjunction with a company’s financial reports. It is vital to develop a financial model that reflects the company’s style of reporting in terms of content and structure. This makes the model more relevant compared with a generic template that shows broadline or clubbed figures.


  1. Comprehensive revenue model: A revenue model should help understand the principal question – How does the company earn money? An ideal revenue model breaks down a company’s revenue segment-wise, links the important KPIs to the revenue, and helps analyze dependencies of those KPIs on the revenue. The model must allow the user to alter the KPIs and view the impact on the financials.


  1. Right value of the business: The eventual goal of investment research is to not miss an investment opportunity. Thus, determining the right value of a business is essential. Techniques such as discounted cash flow and peer valuation can be employed for this purpose. An appropriate valuation involves applying the accurate cost of capital and terminal growth rate, along with selecting comparable peers in case of peer valuation multiples.


  1. Impeccably linked model: It is of paramount importance to show that if an input is changed in one cell, the change should flow to all the cells dependent on the input. Excel dependencies should clearly be established across the model, and the links should be fashioned in a logical and technically sound manner. In an equity valuation model, three crucial statements should be mentioned – Income Statement, Balance Sheet, and Cash Flow. These must be flawlessly linked to each other.


  1. User-friendly model: The user should be able to instantly connect to the model and comprehend it effortlessly. Color codes used across the model can help the user maneuver through it efficaciously. For example, blue font for the company’s reported figures and red for assumptions are recommended. Notes such as sources of information, assumptions are taken, and action points make it easier for the user to get a fair understanding of the model briefly. Advanced excel functions and macros may be incorporated as per the user’s desire.


  1. Strong reputation and resources: A firm having well-experienced employees would have the expertise to build a variety of models. This, complemented with adequate employee strength, a strong information technology infrastructure, access to financial databases, and the ability to serve global clients round the clock, would help deliver a model that is perfect for the client.


The factors mentioned above can help you find the best firm to conduct financial modeling. After all, 'The Perfect Financial Modelling Firm’ would deliver ‘The Perfect Financial Model’ to you! 

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