Why is financial modeling important?

Why should you care about financial modeling? In the next few minutes, I'll explain what financial modeling is, and how understanding it can help you move your career forward. For anyone pursuing or advancing a career in corporate development, investment banking, FP&A, also called financial planning and analysis, equity research, commercial banking, or any other area of corporate finance, building financial models is part of the daily routine. The reality is that for many of the most lucrative and exciting areas of finance, financial modeling is a critical skill that you need to have. In particular, financial modeling is really just a tool to help decision makers make decisions. These kinds of decisions include, for example, whether or not to invest in a company, an asset or security, whether or not to pursue a project, like, for example, a new R&D project at a firm, or building a new factory, whether or not to pursue a merger acquisition deal. Either to sell the company that you currently work for, or to purchase another company. Or whether or not to raise capital from the outside markets. All of these kinds of decisions are critical to the future of any company that's out there, and financial modeling is what helps us make those decisions. In particular, a good financial model allows decision makers to test scenarios, observe potential outcomes, and hopefully make an informed decision, that's the idea at least. 

Now, the reality is that today, there's a lot of talk about new software programs being used in modeling. But, take it from me, based on my experience, and based on the experience of countless other corporate finance professionals, Excel is still the dominant software tool for financial modeling, the vast majority of financial modeling takes place in Excel. There was a newspaper report a few months ago about how certain companies were moving away from Excel, and starting to use other software programs in financial modeling, but a follow-up survey to that, and the vast majority of user response to that article showed that Excel is still the dominant tool in this space. If you're going to be an effective financial modeler, then, you need to understand Excel, and you need to be able to perform financial models in Excel. At this point, hopefully you understand the basics of when and where financial modeling is useful.