Financial Statement Modelling Part I - Introduction

Financial statement modeling is a key step in the process of valuing companies and the securities they have issued. An effective financial statement model must be based on a thorough understanding of a company’s business, management, strategy, external environment and historical results. Thus, an analyst begins with a review of the company and its environment-

Using this information, an analyst identifies key revenue and cost drivers and assesses the likely impact of relevant trends, such as economic conditions and technological developments. Financial statement modelling is not merely a qualitative or accounting exercise, it is the quantitative expression of an analyst’s expectations for a company and its competitive environment.

Coming up next: Part II- Financial Statement Modelling: An overview