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Have you ever wondered what would be the impact of a 5% decrease in your turnover during the last semester on your year-end cash? Or the impact of a 2 month delay of your main client order? Or the impact of a delay in launching your new product?
It is actually possible to make a rough evaluation of it but if you want to change a couple of hypothesis it will get pretty tedious… and the result will not be very reliable since some significant impacts could be missed (such as evolution of direct and indirect costs, changes in working capital, etc.)
In the current economic environment, it is crucial for companies to precisely monitor and forecast such financial issues. That is why many CFOs use powerful tools to bring precise answers to these specific questions. Their goal is to anticipate, analyze and compare different scenarios: that is what a financial model does.
A financial model is a tool enabling you to forecast the evolution of your company’s P&L, your balance sheet and your cash flow statement depending on different scenarios and key hypotheses. As a taylor-made tool, it produces adequate answers to end-users. Financial models are flexible and powerful. They are almost always built in Excel, because it is the most adaptable, robust and universal tool for that. With these three combined advantages, Excel comes second to no other tool when it comes to financial modeling. It can actually be interfaced with companies’ ERPs, which is often the most flexible solution.
In a context of strategic planning: a financial model allows a greater flexibility than consolidation softwares (Hyperion, Magnum…). Financial models ease interactions between central functions and the different subsidiaries set in other countries. These models offer a synthetic vision of the hypothesis and their consequences on the financial cash flows of the business.
In a context of fundraising: the CEO and CFO must be able to communicate precise and robust financial projections to potential investors.
To produce short, middle and long-term cash flow forecasts: in the current economic environment, keeping a close eye on cash evolution must be a priority. Thanks to financial models, the Treasury Manager can take into account the specificities of its company’s financial flows to build precise forecasts. Relying on a financial model enables him to make the right decision between different potential sources of funding.
UpSlide is an add-in which helps intense users of Microsoft Office such as financial engineers to work faster thanks to shortcuts used through the modeling process, quick formatting tools to help them structure their models and one-click charts to share their results with collaborators.
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