First of all, there needs to be a situation or problem that requires you to make a financial decision. Your decision will depend on the outcome of two or more options. Let's look at the various aspects of a financial model:

Financial decisions: Financial decisions can be divided into three main types:

• Investment
• Financing
• Distributions or dividends

We will now look at some reasons for investment decisions:

1. Purchasing new equipment: You may already have the capacity and know how to make or build in-house. There may also be similar equipment already in place. Considerations will thus be whether to make or buy, sell, keep, or trade-in the existing equipment.
2. Business...

In the scheme of things, the best or optimum solution is usually measured in monetary terms. This could be the option that generates the highest returns, the least cost option, the option that carries an acceptable level of risk, and the most environmentally friendly option, but is usually a mixture of all these features. Inevitably, there is an inherent uncertainty in the situation, which makes it necessary to make assumptions based on past results. The most appropriate way to capture all the variables inherent in the situation or problem is to create a mathematical model. The model will establish relationships between the variables and assumptions, which serve as an input to the model. This model will include a series of calculations to evaluate the input information and to clarify and present the various alternatives and their consequences...

Wikipedia considers a financial model to be a mathematical model that represents the performance of a financial asset, project, or other investments in abstract form.

Corporate Finance Institute believes that a financial model facilitates the forecasting of future financial performance, by utilizing certain variables to estimate the outcome of specific financial decisions.

Business Dictionary agrees with the notion of a mathematical model in that it comprises sets of equations. The model analyzes how an entity will react to different economic situations with a focus on the outcome of financial decisions. It goes on to list some of the statements and schedules you would expect to find in a financial model. Additionally, the publication considers that a model could estimate the financial impact of a company's policies and restrictions put in...

There are several different types of financial models. The model type depends on the purpose and the audience of the model. Generally speaking, you can create a financial model when you want to value or to project something or have a mixture of the two.

The following models are examples that seek to calculate values.

In the following screenshot, we see the starting point for most valuation models and what it includes:

1. Balance sheet (or statement of financial position): This is a statement of assets (which are resources owned by the company that have economic value, and that are usually used to generate income for the company, such as plant, machinery, and inventory), liabilities...

Excel has always been recognized as the go-to software for financial modeling. However, there are significant shortcomings in Excel that have made the serious modeler look for alternatives, in particular in the case of complex models. The following aspects are some of the disadvantages of Excel that financial modeling software seeks to correct:

• Large datasets: Excel struggles with very large data. After most actions, Excel recalculates all formulas included in your model. For most users, this happens so quickly that you don't even notice. However, with large amounts of data and complex formulas, delays in recalculation become quite noticeable, and can be very frustrating. Alternative software can handle huge multidimensional datasets that include complex formulas.
• Data extraction: In the course of your modeling, you will need to extract...