Definition of ‘Financial Model’
A financial model is a mathematical model usually built using a spreadsheet, which is designed to represent the financial performance of a business.
A financial model will normally have a number of input values (assumptions) which are entered by the user, and a series of calculated values based on formulas built into the model during its design and construction.
Business plan financial models should include the three fundamental accounting statements, the income statement, balance sheet and cash flow statement. Our financial projections template is an example of a startup financial model which can be used to produce financial statements for the next five years.
Financial models are useful as they allow a business to carry out a series of what if scenarios by changing the input variables to produce different financial projections for the business. This process allows the potential outcome of making a business decision to be estimated and considered at minimal cost and risk.
For further information see the Wikipedia business model definition.
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