Bridget Lyons, Professor of Finance at Sacred Heart University tells us about financial modeling : its evolution of the past decade, its benefits and its place in Luxembourg.
How has the demand for financial modeling changed over the past decade?
The need for candidates skilled in financial modeling seems to increase every year. In part this reflects changes in technology and a move away from simply analyzing historic information toward the ability to forecast and model possible future outcomes. Financial models have become an important tool in improving business decision making.
What exactly is financial modeling?
Well the term can refer to many things but generally a financial model refers to a technological tool – often an Excel spreadsheet, that allows for forecasting and “what if?” analysis. A model enables the user to examine outcomes under different input assumptions and facilitates analysis of various future scenarios. Models can be built to forecast financial statements, analyze capital budgeting decisions, value firms, and compare operational strategies. Financial models are also used in portfolio management and risk assessment.
Where is financial modeling used most?
The skill is most used in investment banking, private equity, hedge funds and investment management but is also sought after at corporations, rating agencies, commercial banks and the valuation units at accounting firms. Large investment banks generally train new analysts in financial analysis and modeling as they embark upon their careers. Smaller firms may prefer to hire candidates already equipped with these tools.
Who can benefit most from training?
The ability to build financial models is required for those seeking to begin a career in investment banking, equity research, commercial lending, or investment management. The corporate finance role today is inseparable from financial forecasting.
Training in forecasting and modeling is also helpful for midcareer professionals seeking to refresh skills or retool. In my decade plus training at investment banks and consulting firms I have also found that lawyers and consultants involved in financial transactions and business analysis also find it helpful to understand financial forecasting and valuation models.
As a financial hub, I think the demand for such skills would be especially high in Luxembourg.