Financial Modeling

AAA

DEFINITION of 'Financial Modeling'

The process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.

INVESTOPEDIA EXPLAINS 'Financial Modeling'

Financial models can be constructed in many ways, either by the use of computer software, or with a pen and paper. What's most important, however, is not the kind of user interface used, but the underlying logic that encompasses the model. A model, for example, can summarize investment management returns, such as the Sortino ratio, or it may help estimate market direction, such as the Fed model.

RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Decision Analysis - DA

    A systematic, quantitative and visual approach to addressing ...
  3. Local Volatility

    A model used in quantitative finance to calculate the unpredictability ...
  4. Stochastic Volatility - SV

    A statistical method in mathematical finance in which volatility ...
  5. Lintner's Model

    A model stating that dividend policy has two parameters: (1) ...
  6. Roll's Critique

    An economic idea that suggests that it is impossible to create ...
Related Articles
  1. Markets

    Digging Into The Dividend Discount Model

    The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.
  2. Professionals

    Get An Academic Finance Career

    Working nine months a year and earning a six-digit salary might seem like the high life, but these jobs are not easy to come by.
  3. Professionals

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
  4. Economics

    The New Global Banking Regulations To Avert Future Crisis

    These are the types of policies that are being developed to minimize the risks posed to the global financial system by banks which are too big to fail.
  5. A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs.
    Fundamental Analysis

    What Can The Monte Carlo Simulation Do For Your Portfolio?

    A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs.
  6. What is GNP?
    Economics

    What's the GNP?

    Gross national product (GNP) is one of many metrics economists use to measure a country’s economic output. For any one year, GNP equals the market value of all the goods and services produced ...
  7. Quantitative easing in Europe is coming, but too slowly to avert a severe slowdown and perhaps even a hard landing.
    Economics

    How Is Europe Affecting The Martkets?

    Quantitative easing in Europe is coming, but too slowly to avert a severe slowdown and perhaps even a hard landing.
  8. We asked more than 27,000 investors across 20 countries questions related to financial issues, from retirement to savings to asset allocation.
    Economics

    How did 27,000 investors answer to these questions

    We asked more than 27,000 investors across 20 countries questions related to financial issues, from retirement to savings to asset allocation.
  9. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  10. The law of demand is one of the most fundamental principles in microeconomics.
    Economics

    Law of Demand

    The law of demand is one of the most fundamental principles in microeconomics. It's all about how price affects demand. According to the law of demand, for all other things remaining constant, ...

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center