What is Financial Modeling? Explanation & Setup of a Financial Model
We learn about financial modeling by discussing the uses of financial models & building one from scratch. Downloadable template included.
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Strangely, students around the world graduate from universities with finance degrees every year without knowing how to build financial models - the most fundamental part of working in finance.
I created this video to break a financial model down in a simple way so that you will be able to understand and build them yourself.
So, what is financial modeling, and what's the best way to learn it?
Financial modeling is pretty simple. You just need to understand the basic components of a financial model so that you can collect all the information and build one.
The main sections are revenue (sales), direct costs (cost of goods sold), fixed costs (operating expenses), and profit margins. We focus on these four areas as we walk through a step-by-step example of building a real financial model.
SECTIONS:
0:22 what is financial modeling
1:18 what do we use financial models for
2:41 components of a financial model
4:59 how to build a financial model step-by-step
5:47 projecting revenue in an income statement
10:37 projecting cost of goods sold
15:02 projecting operating expenses
17:37 calculating gross profit, operating profit, and net income
I hope that you can now understand financial modeling and how financial models are built. If you have questions - please leave comments below and I'll try to help. Cheers!
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#whatisfinancialmodeling #financialmodel #financialmodeling
Пікірлер: 134
Questions? Let me know in the comments happy to discuss. 🚀 Also, if you want to learn how to systematically scale your startup without ending up as one of the 90% of startups that fail, check out my free training webinar ⇒ www.ericandrewsstartups.com/financeforstartups
@pappalardox
8 ай бұрын
Great video, thoroughly explained and with some helpful hints for folks that aren't as familiar with Excel. Only thought/question is this: Does a valid (even basic) financial model not make some assumptions regarding an increase in COGS over time? Predicting that those values would hold steady over that length of time seems like a pit fall for this model, even based on hypothetical values.
This model literally saved my life. My online course needs models and online instructors don't teach, just grade. I'm essentially paying to teach myself. Took me all week to find this video, but I am GRATEFUL!!!
@eric_andrews
2 жыл бұрын
You are welcome and I'm so happy it was exactly what you were looking for !!
As a non eng speaker i really appreciate your clear pronunciation skills! I need to explain a model to the professor tomorrow for an exam & you saved me.
@eric_andrews
Жыл бұрын
Happy to help!
I am so glad that I found your channel. So helpful and amazing. Man I really appreciate! ✨♥️
I hope you continue to provide these kind of learning videos. You are a rockstar!!
@eric_andrews
3 жыл бұрын
Thank you, I will Asad!!!! Lots more to come this year.
You are now the GOAT for financial modeling. Thanks again!
@eric_andrews
3 жыл бұрын
Cheers Daniel 🙏🙏🙏
Impressive. Very consise. I feel smarter after watching #excel #financialmodel #profit #enjoylife
Eric, Thank you very much for sharing! It's such a great video to start making financial modeling. Simple but informative. Awesome!
@eric_andrews
2 жыл бұрын
Glad it was helpful!
Amazing clarity. Thank you for sharing the Excel file for free!!! Subscribed!
@eric_andrews
3 жыл бұрын
Happy it was helpful Lavender, appreciate the subscribe!!
Hi Eric, thanks for making this video! It helps me during my preparation for a Job Interview. I learned financial modeling in my under-graduate, but I wasn't ready yet and I didn't learn much about the subject. This video helps me to remember what I was learned back in university and also adding more finance knowledge to me. Many thanks to you!
@eric_andrews
3 жыл бұрын
Really glad it is helping you in your career Muhammad and getting you started financial modeling. Best of luck to you!
Appreciate how you are giving away all this information for free ❤️. All your videos are very informative. Keep up the good work please !!
@eric_andrews
3 жыл бұрын
It's my pleasure Azhar! Lots more coming, thanks for the support 😀
Wow Amazing explanation. Thankyou Sir
Wow! This is do well explained!thank you!!
Thanks for a great video Eric. It was very helpful!
@eric_andrews
Жыл бұрын
Glad it was helpful!
Thank you eric, you are the best. Thank u thank u.
Great content- an amazing refresher since it's been a long time since I calculated these financials
@eric_andrews
Жыл бұрын
Glad it was helpful!
Hi Eric, Thanks for making this video, it's very useful.
@eric_andrews
Жыл бұрын
My pleasure
Eric, this is extremely useful. You make people walk through it smoothly. I've been looking for something like this. I started from the advanced ones and I was struggling with it (as you said so). Now it's crystal clear. Thank you!
@eric_andrews
3 жыл бұрын
Glad to hear it! Thanks for the comment!!
Well done. Thanks for your efforts.
@eric_andrews
3 жыл бұрын
My pleasure, glad it was helpful Soner 👍
Такие близкие игры самые интересные) кайфово что тебе пришли такие заносы сегодня)
Very good and easy explained...thanks
@eric_andrews
3 жыл бұрын
My pleasure Sandip! Cheers
Thanks Eric Sir
Really informative..ERIC
Wow! Amazing!
Love your content! Thanks .
@eric_andrews
Жыл бұрын
Thanks for watching!
Thanks for sharing, very helpful :)
@eric_andrews
3 жыл бұрын
My pleasure, glad it was helpful Jia
Love your video. Thank you!
@eric_andrews
3 жыл бұрын
My pleasure Maggie, glad it was helpful!
Thank you!
Nice, thanks!
Thank you eric..this help me a alot. Keep it up..👍
@eric_andrews
3 жыл бұрын
Cheers Naman happy it was helpful 👍
Wow thanks Sir, great explenation. very helpfull
@eric_andrews
Ай бұрын
very welcome!
Thank you
Thanks a lot, great tutorial
@eric_andrews
2 жыл бұрын
Cheers!
Really helpful video
Thank you Eric
@eric_andrews
3 жыл бұрын
You are very welcome Tarek!
Thank you so much, I learnt something new 🤗
@eric_andrews
2 жыл бұрын
You are very welcome 😁
Nicely explained thanks
@eric_andrews
9 ай бұрын
Cheers
Thankyou for sharing information
@eric_andrews
Жыл бұрын
you are very welcome
Thankful... Give me back lesson... 👍
@eric_andrews
2 жыл бұрын
youre welcome!
OMG thank you so much! this is so helpful!!
@eric_andrews
Ай бұрын
Glad to hear it!
excellent lectured 👍
@eric_andrews
6 ай бұрын
Thanks a lot!
Thanks a lot I had no idea about the financial model.
@eric_andrews
7 ай бұрын
my pleasure!
It is great . want to learn more.
100 present thank you & Tripalgem Bless you!!!
Financial Modeling is a broad/general concept. It covers from corporate finance, quant model and statistical model (linearity). Really depends on which you need in specific purpose. I think the one you introduced in the video is more like a Corp Finance (FP&A) focused financial model. Correct me If Im wrong, thanks!
@eric_andrews
Жыл бұрын
For sure! Any financial thing could be modeled, but this video is for the purposes of projecting financials to run a company (corp finance as you said)
Thanks, Eric. You have been such a great help. I am trying to set up a light manufacturing financial model. A combination of three statements, DCF, FCF, cap model, sensitivity analysis, dep schedule, LTV/CAC as well.
@eric_andrews
3 жыл бұрын
It's my pleasure to help. Sounds like you are on the right track with your model! Good luck Hadi
Dude you rock…..you dropped so much value
@eric_andrews
Жыл бұрын
Haha thanks, glad it was helpful!
You are the best 🤩🤩🤩🤩
@eric_andrews
3 жыл бұрын
Glad it was helpful Michelle!!
Teşekkürler.
@eric_andrews
Жыл бұрын
You are very welcome!
If possible could you please share its use able format please....as the one which was in link, not able to use that format...please
May i know do you have what if analysis video?
0:32 finance and accounting
Eric good, but how to modify this model for a manufacturing business unit.
double entry book keeping system is just the old school of SQL language we use today.
Please whole course about financial modeling
@eric_andrews
3 жыл бұрын
Don't worry, it is coming!
Please make whole course for financial modeling
@eric_andrews
3 жыл бұрын
I am going to at some point Gazal! Thanks for the suggestion 👌
Dear Friends, I have 1 question regarding Financial Modeling: 1/ Please tell me the difference between Scenario analysis, sensitivity analysis, stress test?, and the intended use of each?. Thank you.
Have you thought about setting up a Discord? Would be interesting to interact with other Startup Founders/Financial Analysts about their modeling approach and information sources. Great videos, thanks so much!
@eric_andrews
3 жыл бұрын
It's actually a pretty cool idea. Do you think there would be much interest? I'm open to it
@Antonioalvarez-nm5mz
3 жыл бұрын
@@eric_andrews Hard to tell how much engagement would be in the begininig. I think it would be a way to grow the community around your channel. It could have discord channels for you to post some useful resources, suggestions for videos, general questions and a place where your viewers can share what are they doing or what their goals are. For example, a topic like how CAC is calculated across different industries or if anyone had experience of how it evolved through time. Just make sure you moderate it so no promoting is allowed. Anyway, you could ask some viewers in your live stream.
@eric_andrews
3 жыл бұрын
@@Antonioalvarez-nm5mz honestly it's an amazing idea. I really appreciate you sharing it. I've been trying to figure out a place where we can all connect, because I imagine we all have similar careers and questions. Sounds like a discord would be a great solution. I'll ask about it in the livestream!!
@eric_andrews
3 жыл бұрын
@@Antonioalvarez-nm5mz Hey antonio - I'm setting up a discord, but I don't have a ton of experience. Do you think you could take a quick look and let me know if you think it's ok? It would be a massive help. If you're open to it, could you shoot me an email at ?ericandrewsbusinessinfo@gmail.com
Hi Eric, may I know how to predict the marketing costs and how to predict the return rate ? thanks a lot
@eric_andrews
2 жыл бұрын
Unless the company has no history, you can just look back at the marketing costs in the past as well as the new customers and figure out what the historical numbers have been, and use them as assumptions going forward. Return rate would be the same. If you do not have any historical data, you will need to make assumptions. Cheers
Eric, so what would be considered in the present? Accounting is past and Financial model is future? What about the here and now?
@eric_andrews
2 жыл бұрын
Generally that would be a lot of data around sales and marketing, and also to be approving or considering different investments, etc, but always keeping in mind your financial plan for the month to understand where you are at / if you want to change your plan. Present finance stuff is more tracking your performance and knowing where you are trending relative to plans. Hope that is helpful
God bless your parents!
Hey Eric, I'm trying to Subscribe to your Exchange to download the Workbook, but I don't know how haha, any help, please?
@eric_andrews
3 жыл бұрын
No problem. Click the link in the description and go to the download page. Then enter your email and click subscribe. After you do that, you will see a link to download the file!
@mohamedreda5738
3 жыл бұрын
@@eric_andrews I can't find the option (Place) to add my Email, also the Subscribe button is not there.
@eric_andrews
3 жыл бұрын
@@mohamedreda5738 first link in the video description bit.ly/finmodeling_mlchmp
Hi Eric, I have a assignment with me, that needed for my studies - if you can help me out working these up it would be really helpful for my studies. If you are okay, let me know through what means can I share to you
Hello, am a student building a farming system profit model. Can I have your guidance kindly
Your KZread channel is great. Really helps me with my business. Who needs business school, when you have KZread? :)
Stupid question.... is only excel used or can you use google sheets? I love google sheets over excel.
@eric_andrews
5 ай бұрын
Google sheets is totally fine as well
Should build a business model first, makes identifying this all easy
When will you create a course in financial modeling?
@eric_andrews
3 жыл бұрын
Hey Peter - sometime before the end of the year I think 😃
lets say in investment banking you are required to make a financial model how would you get the info for the business?
@eric_andrews
3 жыл бұрын
Is it a public or private company ?
@SeMTeXSpale
3 жыл бұрын
@@eric_andrews lets say it was jp morgan
@eric_andrews
3 жыл бұрын
@@SeMTeXSpale I'm talking about the company that you're modeling not the investment Bank 😅
How can I learn full course of financial modelling from Eric? And what is the cost? It is urgent please do reply
@eric_andrews
2 жыл бұрын
Hi Priyanka - I'm going to be releasing a comprehensive course in November, but for now I just have the youtube. I recommend you watch my 3 statement financial model video next, as that is more than most people learn during their 4 year degree: kzread.info/dash/bejne/qqCMpryyipzHqs4.html
@priyankakaran6932
2 жыл бұрын
@@eric_andrews okay thank you so much sir
Hi Eric , i am going to interview for Administrator finance i would like you to help me with questions and duties for this position.
How can I get the template of the financial modeling?
@eric_andrews
2 жыл бұрын
It's right there in the description for free 👍
Could you build one for a services business in the future? ex: website design company
@eric_andrews
Жыл бұрын
Yes it's on my list
In the video, you only teach us about Financing Model for Income Statement. Is Financing Model only shown income statement? Is Financing Model no need to shown balance sheet? Why?
Don't understand why your Financial Model Example included talking for several years ie. 4 years Can Financial Model only be 1 year?
Cool videos. Would it be possible to record in 1080p ?
Is the term "Predictions" mean same as "Forecasting" ? That's what I've been hearing all my life, and when I hear someone say "Predict the future" , I just wonder how different is it from "Forecasting" ?
@eric_andrews
Жыл бұрын
predictions, forecast, budget, and plan all mean the same thing in the context of financial modeling 😅
Are all Financial Model Figuers predicted only? We don't know the acutal result for sales quantities in future years, don't know the actual payroll figures in futures If the figures are predicted or projected, the final result may be only predicted. I don’t think that predicted financial model is meaningful & useful for board of directors or boss.
Starts by saying finance is about future forecasting and then says the most common financial model is the Income Statement which is a backwards looking (Accounting) statement. You sir don't know what you're talking about.