What is financial modeling? How is it helpful in analyzing a firm's financial statements?

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The Answer is Financial modeling refers to the creation of a mathematical representation or model of the financial and operational characteristics of a business. Applications involving financial modeling include business valuation, management decision making, capital budgeting, financial statement analysis, and determining the firm's cost of capital. Such models are at best a simplistic representation of how the firm actually creates value for its shareholders. Their real value comes from forcing the model builder to think about the important relationships among the firm's financial statements and to focus on the key determinants of value creation and the assumptions underlying forecasts. Such models also enable an analyst to examine the financial implications for a firm of certain economic events.

What Is Financial Modeling? How Is It Helpful in Analyzing