1.

Three-Statement Financial Model

The three-statement financial model integrates and forecasts a company’s three financial
statements—the income statement, balance sheet, and cash-flow statement—into the future.

The three-statement model represents the real meat and potatoes when it comes to financial
modeling. This model acts as a standard that gives a comprehensive overview of the company’s
financial history, current standing, and future performance.

2. M&A Model

The merger and acquisition (M&A) model calculates the impact of a merger or acquisition on the
earnings per share (EPS) of the newly formed company. This value can then be compared to the
company’s current EPS. The M&A model is useful for helping a company decide whether a
potential merger or acquisition will be beneficial to the company’s bottom line.

3. Forecasting Models

Forecasting is one of the most important tasks that the FP&A department takes care of on a
regular basis. It is typically used to predict future revenues, expenses, and capital costs. Financial
models used for forecasting are often compared to the actual budget to review performance in
retrospect. Here are four financial model examples used for forecasting:

 Straight-Line Model
 Moving Average Model
 Linear Regression Model
 Time Series Model

4. DCF Model

A financial analyst may turn to the discounted cash flow (DCF) model when they need a way of
determining valuation. One of the key attributes of the DCF model is that it calculates current
value while taking into account predictions for how much money something will make in the
future.
The DCF model can be used to value an entire company, but you can also use this model to
value:

Shares of a company

A project or investment within a company

A cost-saving initiative within a company

Anything that has an impact on cash flow

5. CCA Model

The comparable company analysis (CCA) model is another way for a business to calculate its
value. It’s a more basic valuation method than the DCF model. The CCA financial model is
based on the assumption that similar companies will have similar valuation multiples. It uses
metrics from other businesses with similar sizes and operations in the same industry. Here is a
list of the most commonly used valuation multiples:

EV/S – Enterprise Value to Sales

P/E – Price to Earnings

P/B – Price to Book

P/S – Price to Sales

6. Asset and Liability Management (ALM)

Asset and liability financial models are primarily used by financial institutions (banks and
insurance companies) and pension funds (corporate or public) to manage their financial
objectives. For example, pension funds must be able to pay pensioners during any economic
conditions, including a crisis like 2008. This is achieved through thorough risk management
strategies that are continually reviewed. Most pension funds conduct a comprehensive review
every three to five years. During this process, they use financial analysis and modeling to adjust
their asset and liability management strategies to reduce portfolio sensitivity to economic
conditions, interest rate changes, and foreign exchange rates.
8. Capital Budgeting Model

Every year the FP&A department is tasked with helping create the annual budget. Some people
view this as being an extremely painful process due to all the fine tuning involved. However, a
proper annual financial planning model that make use of quarterly figures and forecasting can
greatly expedite the process. Because so many companies go through this process every year,
insight software has developed a budgeting software solution to streamline the process.

Most large companies will have a financial planning model in Excel or a budgeting software
solution that they will use to evaluate prospective projects before they chose to pursue them. This
financial analysis and modeling will vary by company but will almost always make use of the net
present value (NPV), internal rate of return (IRR), and payback period calculations. These three
financial performance metrics are best used when a company has several potential projects but
can only pick one or two of them.