Financial Modelling & Valuation – Brainstorming in Finance

Financial Modelling & Valuation – Brainstorming in Finance

Financial Modelling & Valuation is a critical tool for business of the future. 

This is the process that essentially determines WHY we are doing what we are doing and sets a framework of goals that companies shall follow.

Yet the process is often not formally recognised within organisations, being fragmented into un-connected spreadsheet analysis, driven by various individual ad hoc initiatives; and we often pretend that company valuation is necessary only for investors or advisors and that it is an unreasonable burden on already busy finance managers and company strategists.

Financial modelling & Valuation is a brainstorming in finance. It starts where traditional analytics and BI systems finish. It analyses the past as an aide to enable a view of the future. Financial Modelling & Valuation helps companies better understand what their future development options are. It embraces the company business model in all its complexity and tests its long-term viability on the market vis-a-vis shareholder expectations.

A good financial and valuation model of a company should provide a three-year actual history as well as a future period of 3-5 years at a minimum. Adding rolling forecasts for the current year, makes it an excellent platform to identify intrinsic business performance trends, and then to re-plot the simulated course as trends and related decisions come into effect.

So effectively, business leaders know where they were, where they are today, and more importantly they can see the future business performance: to track where, exactly, business performance and company value will be in a month, a year, or several years.

A company financial and valuation model should combine profit & loss accounts, balance sheet and cash flows elements including such categories as CAPEX, working capital, level of capital employed and its structure (equity vs. debt), EVA, return on capital employed, cost of capital employed, DCFs, etc. with operational data (various numeric measures of units) into one holistic data modelling system, built around the selection of key business drivers that best represent the company’s business model.

All this in an effort to achieve desired future business performance and valuation levels.