Financial Modeling is the task of building an abstract representation (a model) of a real world financial situation. This is a mathematical model designed to represent (a simplified versions of) the performance of a financial assest of portfolio of a buisness, project, or any other investment, Financial Modeling is a general term that means different things to different users; the refernce usually relates either to accounting and cooperate finance applications, or to quantitative financ applications.In simple words the process to solving a problem in a financial services world, using a tool like excel is known as financial modeling.Application of a Financial Modeling:The key applications of financial modeling are:1. Business Valuation2. Scenario Planning3. Capital Budgeting4. Financial Statement Analysis5. Project Finance6. Risk Management7. Portfolio Evaluation8. Data RepresentationFeatures of Financial ModelUnlike simple spreadsheets, a financial model is much more.1.It is Structured____ with a logical flow of assumptions, inputs, calculations and outputs.2. It is Dynamic thus, allows the user to change inputs and observe what happens to ouputs. This allows for sensitivity analysis.3. It is more readable as compare to general spreadsheet.4. It allows for error handling.5.It should never an objective.Major DO's and DON'tsFor a financial model, some major things to be taken care of are:1. All items should be in the same font _____ unless something is a header that needs to attract attentions.2. Decimal points should be same across the entire model.3. Units should be displayed prominantely.4. Model adjectives should be clearly defined.5. Model inputs assumptions should be clearly defined.Defining Model Adjectives:It is important to defined model adjectives first before embarking upon creating a financial model.Why are we building this model?1. Is it for comparing company financial?2. Is it look to at asset allocation?3. Is it to do risk analysis?4. Is it to find out some repayment schedule?Examples ___ Process Flow For A ModelLet us assume we are building a valuation model for a company that runs cinema screens like PVR or lnox.Let us lay down the objectives inputs models flow and outputs expected.