It is unlikely that the outputs of a financial model match the actual reality. In other words, it allows a firm to examine the potential financial consequences of a choice quantitatively. How can you distinguish between these two situations? The answer lies in the good-old financial model!Ī financial model enables you to keep track of your expenditure and income over time, allowing you to assess your firm’s monetary status.Ī company's financial model is a summary of its performance, based on certain inputs, that predict the future monetary success. One minute, you're a profit-making machine, and the other minute you can’t even make ends meet. You might have heard, 'If it isn't broken, don't fix it.' But, what if you're not sure whether or not your company is broken or simply in trouble? Most people don’t think of anything pleasant when they hear the term “financial model.” On the contrary, it may cause some discomfort that cannot be ignored.
