Timothy Here Again,
Recently, I have been posting regarding one of the most important skills you need to transform your life in 2021. Many people have asked me what skills they require to become good financial modellers.
Although, many expert financial modellers love to tell you how complex things are, and how sophisticated their models are too. But their reasons lie in protecting their ego, not empowering you. So, in this post, we will be looking at the 7 keys areas of financial modelling.
From my experience, the core skills required to be a good financial modeller can be divided into 7 key areas of knowledge which have been proven to make modelling simplified.
- Revenue & Expenses: When Accountants talk about revenue and expenses, you might be thinking about debits and credits only. But, when building financial models, it goes beyond that because, it is more about understanding the relationships between each of the areas within a financial model, and their impacts on the financial statements.
- Working capital: A sound and practical knowledge in working capital (current assets and liabilities, liquidity and quick ratios) go a long way to helping you.
- Assets: Here, the primary focus is usually on tangible (and intangible) assets and their treatment over their useful lives.
- Capital structure: The capital structure area within a financial model is another area which can become very complicated because of multiple methods of funding. So, the starting point here is debt and equity.
- Taxation: focusing on the basics and building more advanced skills over time. In other words, once you have a solid understanding of basic tax expense and losses modeling, you can move onto more advanced considerations such as deferred tax assets and liabilities, permanent differences and tax payment timing delays.
- Other financial statement items: for every non-financial statement piece of a financial model that impacts the financial statements would be classifiable as either revenue and expenses, working capital, assets, capital structure or taxation.
- Financial statements: To become a good financial modeler, it is important to understand these relationships between the financial statements, and how each of the other areas within a financial model impacts each of these financial statements.
Knowing these core areas will help you become a good financial Modeller and help you to be among the top earners in your field.
Dedicated to Your Vision and Success
Tim Jibodu, FCA
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