financial model - a special document that contains the calculation of certain financial performance of the company on the basis of projected sales and planned costs.The main objective of this model - an estimation of efficiency of use of available resources.
Based on practice, the financial model includes calculation of the entity's revenue, taking into account cost and sales of natural settings, as well as purchases, production costs, production volumes, other income and expenses, investments, the company's liabilities and cash resources.The final stage of the construction of this model is the formation of the forecast balance sheet, as well as budget revenues and expenditures.The aim of the work is considered to be the definition of value change of the financial result of the enterprise at any dynamic parameters involved in these calculations.
financial model is based on such key principles as the definition of hurdle rate of return on capital.In other words, identifying the minimum level of return on investment should provide a group of managers in the company.It will help identify it clearly articulate the requirements to the result.
financial model is based on another principle - focusing the analysis on the level of liquidity of the Company.This concept is directly linked with a focus on business value for the shareholders.
financial model of the enterprise can be defined as a simplified mathematical representation of the real financial side of business firms.
This definition models means that it can help guide attempts to provide a comprehensive financial situation or set of specific relations in the form of a simplified mathematical equations.
financial model, as any economic category, has a purpose, which is to assist the chief executive in the decision.More appointment of such modeling can be considered in the study of some of these simple models as estimates, linear programming and analysis of the value of production volume and profits.
As mentioned above, the financial model provides guidance necessary analytical information used as a key in making more informed decisions.This information can be analyzed under two headings:
1. Achieving the goal.Using the financial model, including the head of some of the data in an analytical way and thus receives a reply, whether the results contribute to the achievement of the company goals.For example, a production company - to maximize profits.
2. Risk Analysis.This is quite an important element of the decision making process, contributing to the instantaneous sensitivity analysis of any solution.
It should be noted that the financial model is closely related only to the quantitative aspect of the decisions.With the right decision should be taken into account qualitative aspects which are no less important than the quantity.
