Financial modelling is the building of a mathematical model to represent the performance of a project or a company, with its primary purpose being able to forecast the proforma financial statements. There are many divergent views on financial modelling – some regard it as the holy grail of finance, while others have done well without any (Aberdeen is one example). In most institutional settings, financial modelling seems to be the bread and butter behind most investment decisions. Does it represent a better and more advanced form of investment analysis? We examine the pros and cons of financial modelling.
The Cons
Time consuming. Building a model is indubitably a time-consuming affair, depending on the level of details, it can take between one to a few hours to get all the numbers in. Based on the 80-20 rule, there is diminishing returns to the amount of additional information generated per unit ......