Book Image

Hands-On Financial Modeling with Microsoft Excel 2019

By : Shmuel Oluwa
Book Image

Hands-On Financial Modeling with Microsoft Excel 2019

By: Shmuel Oluwa

Overview of this book

Financial modeling is a core skill required by anyone who wants to build a career in finance. Hands-On Financial Modeling with Microsoft Excel 2019 explores terminologies of financial modeling with the help of Excel. This book will provides you with an overview of the steps you should follow to build an integrated financial model. You will explore the design principles, functions, and techniques of building models in a practical manner. Starting with the key concepts of Excel, such as formulas and functions, you will learn about referencing frameworks and other advanced components for building financial models. Later chapters will help you understand your financial projects, build assumptions, and analyze historical data to develop data-driven models and functional growth drivers. The book takes an intuitive approach to model testing and covers best practices and practical use cases. By the end of this book, you will have examined the data from various use cases, and have the skills you need to build financial models to extract the information required to make informed business decisions.
Table of Contents (15 chapters)
Free Chapter
Section 1: Financial Modeling - Overview
Section 2: The Use of Excel - Features and Functions for Financial Modeling
Section 3: Building an Integrated Financial Model

Understanding sensitivity analysis

In Chapter 9, Valuation, we computed a value for equity share price. As a result of the uncertainty inherent in your model, you should take some steps to mitigate this. One way is to run some tests to see how the share price behaves when you change some of the inputs and drivers utilized in arriving at that value.

This process is called sensitivity analysis. Apart from the volatility of your target value, it also indicates which inputs or drivers have the greatest effect on the target value. You will need to identify two inputs or drivers that appear to hold prominence in your model.

We have already mentioned that turnover is the most prominent figure in the income statement. So, we can use the revenue growth driver as one of the items to sensitize. Another item of prominence is the terminal value.

We have seen in Chapter 9, Valuation, how much...