FIN 205FIN205_StudyGuide.

Chapter 1: Financial modelling 1.1 What is financial modelling? In finance, one would come across all kinds of information and data related to the company or the market. Financial modelling is a method that utilises such information and data to build a model to represent a real-world financial situation. It involves either building a model from scratch or maintaining the existing models with new information. Through the abstract numerical scenario, users can get a better understanding of how different inputs and how changes in the inputs would influence the outcome. 1.2 Why is financial modelling important? Financial modelling is very useful in the analysis and evaluation of a firm, a project, a portfolio or an asset class, which will contribute to a more accurate and informed investment or other strategic decisions, for both institutions and individuals. Basically, it is a tool used to aid the decision-making process, by the companies in the cost estimation and project benefit analysis, by financial analysts in the impact forecasts and event analysis, by portfolio managers in risk management and portfolio allocations, or by investors in company valuations and asset pricing.