Streamlining your financial modelling process

Excel is an invaluable tool in investment banking. It’s essential to grasp the different types of models used in investment banking in order to achieve the best results. In this blog, we’ll overview some of the most commonly used financial models in investment banking and offer some suggestions on how to improve your process.

Variance Analysis Model

The variance analysis model method is particularly useful for businesses that need to stay on top of their financial health and ensure they are meeting their financial goals.

This model helps in identifying discrepancies, allowing businesses to understand where they deviate from their financial plans. By analyzing these variances, companies can make informed decisions to control costs, adjust forecasts, and improve overall financial performance.

Capital Budgeting Model

The capital budgeting model is crucial for businesses when deciding where to allocate their capital and is a tool investors will use when determining the value of a potential project.

This model evaluates potential projects or investments based on several financial metrics, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.

Comparable Companies Model

Also known as “comps’, this valuation method assesses a company’s value by comparing it with similar companies in the industry. This model uses financial ratios and multiples, such as Price-to-Earnings (P/E) and Enterprise Value-to-EBITDA (EV/EBITDA), to derive a company’s market valuation. This model can help value new businesses and start-ups in particular.

Three Statement Model

The Three Statement Model is a fundamental financial model that connects a company’s income statement, balance sheet, and cash flow statement into one integrated model. This model is used to forecast a company’s future financial performance by making assumptions about revenue growth, operating expenses, capital expenditures, and more.

Discounted Cash Flow Model

The Discounted Cash Flow (DCF) Model is an intrinsic valuation method that estimates the value of a company based on its expected future cash flows. By discounting these cash flows back to their present value, the model provides a valuation range for the company. This method is widely used because it focuses on the company’s ability to generate cash in the future.

Streamlining Your Process

Whichever one or combination of these models you will find most useful in your context, the process of creating the models in Excel for investment banking can be tedious and time-consuming.

Industry leaders in the finance sector, Operis, have specifically created an Excel add-in tool that will aid and streamline your financial analysis. Operis Analysis Kit (OAK) offers specialised features, tailored to the needs of investment banking and similar tasks.

How OAK can help

OAK is designed by financial experts for financial experts. As such, the software is ideally suited to investment banking professionals. Discover all of the helpful tools and features you have always wanted to see included in excel shortcuts for investment banking. Simply download our Add-In to access help that will transform your process.

OAK’s helpful features include:

• Mapping a model: The Map functionality creates a visual representation of the structure for each sheet in a workbook, or for selected worksheets, allowing you to easily identify different worksheet elements and pinpoint any logical errors.
• Comparing model versions: Efficiently and accurately compare two Excel sheets for differences. The comparison is usually completed in minutes, significantly reducing the time and effort needed.
• Summarizing a model: Obtain a complete overview of an entire workbook, greatly minimizing the risk of unnoticed errors. This essential feature offers users a deep understanding of the spreadsheet’s structure, layout, and formulas
• Using named ranges: By using OAK, you can avoid the issue of the Name Manager consuming a significant amount of memory during deletion, often leading to an ‘Out of memory’ error in Excel. OAK will systematically organise the data.
• Review issues: easily examine the information in the workbook, giving you access to all issues and enabling you to edit them as needed.
• Excel formula tracing tool: navigate, split and prune formulas with ease using OAK.

Find out more

Want to find out more about how our professional Excel Add-In can improve your investment banking experience? Get in touch with us by filling in our enquiry form.

Want to try OAK out for yourself? Sign up for a free 30-day trial to experience OAK’s benefits first-hand.