Financial modeling examples: 5 common types
Angelica A.
September 15, 2020
  |  

Financial modeling examples: 5 common types

Angelica A.
September 15, 2020
  |  
Company Forensics - Learn from the mistakes of VC-funded startups | Product Hunt

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An overview of financial models is a critical review of any business owner’s journey. Going into financial modeling permits forecasting the future of a company, for instance, which is especially useful in terms of startup performance. However, there are quite diverse examples of financial modeling. And they come with a wide range of uses. In this sense, they basically give entrepreneurs different choices to create various financial representations and calculi of their companies or potential deals. 

To help you determine what works best for you and your company, we’ll give you an overview of financial modeling along with a financial modeling definition. Of course, we’ll also go over the 5 most common financial modeling examples. And throw in a bit on our financial model template for startups if you ever need to give a presentation of this kind. 

What is financial modeling? 

Financial modeling is a calculation of an event’s impact on a company’s future. Typically, we use a spreadsheet for these and sum up several variables in these models to forecast a business’s future performance. The idea is for these docs to allow startup decisions based on strong and quantitative reasons.

What do financial models include?

Financial modeling takes into consideration a company’s operations, accounting, and corporate finance, for example. These are used to estimate costs, especially for new projects. They can also help define the impact of changing a policy or understand how a company’s stock could be affected. Furthermore, they can support how we keep track of a business’ KPIs, such as gross and net margins. Yet, financial modeling is also used to compare similar companies, for example. 

Consider these tools as types of risk management. The models can perfect how we analyze options and make proposals. Such calculations help us make projections of balance sheets, cash flow statements, and even help build schedules! 

Let’s now move on to examples of the most common types of financial models. We know you’ve been looking out for those.

financial modeling example

5 most common types of financial models

- Discounted Cash Flow Model (DCF): 

The DCF helps value a company based on its net present value of future cash flow. This means that the business’s value can be seen as equal to the sum of its expected future free cash flows. Those are discounted at a proper rate, however. And they frame how we evaluate the potential of an investment. These types of models are used in equity research, for example. It’s also based on what’s called a 3 statement model. 

- Merger & Acquisition (M&A) model: 

The M&A evaluates 2 companies coming together. To follow it, we require what’s called an accretion and dilution analysis. The model first forecasts both companies to then define the range for the proposed purchase price. This model’s objective is to show the impact of the acquisition for each company. And it also compares those to the new potential company, which can end being accretive or dilutive. Investment banking and corporate development are the ones to use this model most commonly.

- Leveraged Buyout Model (LBO): 

A leveraged buyout speaks of the acquisition of a company with borrowed money. It’s a very detailed and challenging model that usually requires complicated debt schedules. Involving a high debt/equity ratio, it can look ruthless. Use it to make a public company private or to spin off a portion of an existing business. It can also help transfer private property. 

- Sum of the Parts Model: 

This model is built by adding up several DCF models, actually. It’s mostly used to value a company that’s got different units in various industries. Yet, it can also help revalue after a restructure. In the end, what it does is value a company. And it does so by the worth of its parts when acquired by another business. It adds up the value of business units A, B, and investments C to subtract D’s liabilities. That lets you figure out the net asset value of a business. 

- Option Pricing Model: 

Financial modeling example number 5 is the option pricing one. There are several types of this one, actually. Yet, the main two are called binomial trees and Black-Scholes. One of the options it gives are contracts, which attest in the holder the right to buy or sell at a specified price. It’s primarily used to price models. And the goal of that is to set a theoretical value. They feed off fixed known, as well as forecasts. Based on pure math formulas, they work like a calculator that’s built into a spreadsheet.

Now, imagine you ever have to go into financial modeling for your startup or business. In that case, you’re most likely to spare much time with a slick design if you resort to a preformatted financial model template. We promised to go over this with you earlier, and we’ll deliver. 

Related: Keep track of all your SaaS expenses with Monthly

Financial modeling example

The best financial model template

We design a lot of our content thinking about startups, like ours, that could very much use a helping hand to get their new venture to succeed. This financial model template was built no differently. Stay tuned for our section below, and you’ll also find a spreadsheet that’s helped our business into profitability. 

As for the template, we always recommend resorting to them when they’re available. These slides give you structure. And they also spare up on valuable time by cutting down how long it takes you to put another presentation together. Templates also help remember all that needs to go into a specific deck to never miss crucial details. 

Our financial model template estimates selling, general and administrative expenses (SG&A), assets owned by a company (WK-CAPEX), the costs of goods sold (COGS), and revenue estimations and accurate projections. It also includes a standard financial statement sheet, so take a look at it to make the best of your financial decisions with a solid base of business calculations and forecasts. 

financial modeling template

A top-notch financial modeling tutorial 

Want to know more about this topic? We get you. Check out our video tutorial. Named Financial modeling 101: tutorial and template, this resource gives way more info on just that. It can help your business vision with great choices that secure and sustain growth.

In it, we give you ways to: 

  • calculate your runway
  • estimate how fast you can scale
  • know how to deploy efforts faster

The above comes with unique access to Slidebean’s spreadsheet, of course. This is the one we’ve used for 5+ years to manage our (profitable) operation. 

And we also came up with an exciting read called Financial Modeling 101. Click through it to learn more. We hope you enjoy it! Let us know if we can help in any way. 

Download our template