Financial Modeling
Build a best-in-class, three-statement financial model showcasing an understanding of business issues, design best practices, and technical skills.
The Financial Modeling PSM is available for Level I and Level III.
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Practical Skills Modules
Practical Skills Modules are available only for registered Level I CFA Program candidates beginning with the February 2024 exam, Level II candidates beginning with the May 2024 exam, and Level III candidates beginning with the February 2025 exam.Register for the CFA Program
Overview of Financial Modeling
Financial modeling skills are essential for anyone pursuing a career in finance. Models synthesize a vast amount of information to help users make better investment and business decisions. The modeler’s technical acumen, design skills, as well as an understanding of the underlying business determine the effectiveness of the model.
In Financial Modeling, you will learn how to build three-statement financial models as it’s done on Wall Street. You will explore best practices, discover optimal model flow and design, and strengthen your Excel skills alongside the instructor in a step-by-step series of videos. Knowledge check questions provide feedback throughout the module. Upon completion, you will be ready to tackle more complex modeling cases in practice.
Watch a sample video from the Financial Modeling PSM for a quick lesson in the use of the MIN function.
Key Learning Objectives for Financial Modeling
- Explore financial modeling best practices, optimal model design and flow, and financial statements.
- Discover how to build key model schedules, such as revenues, costs, fixed assets, taxes, working capital, debt, and equity.
- Practice advanced Excel techniques in tandem with the instructor.
- Build a working, presentation-ready financial model in Excel.
- Solve the most common financial modeling problems.
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10–20 hours to complete
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Online self-paced
Practical Skills Modules can be completed online at your own pace.
Key Learning Objectives by Unit
Unit 1: Getting Started
- Explore the purpose and use of financial models.
- Examine the assignment and the company that you will model.
- Discover how to properly plan and design a financial model.
- Explore the common approaches to tab structure.
- Study the optimal flow of a financial model.
Unit 2: The Front End
- Examine the importance of having a cover page in a financial model.
- Discover the need for a well-designed, customized executive summary.
- Define the optimal way to center titles in a financial model.
- Identify how to properly add headers and footers to your model.
- Explain the importance of having a well-designed assumptions tab in every model.
- Explore powerful custom formatting skills to ensure all the values in your model are clear.
- Discover how to design and build a scenarios page within a model.
- Apply four different methods to create the live case that is used to run the model.
- Examine how to build a combo box to control and change the scenario being used in the model.
- Explore data validation, an alternative way to change the scenario.
Unit 3: Revenues
- Examine the ideas and themes required to build the model’s engine.
- Explain the importance of a scenario tag and acquire the skills to build it.
- Discover the design, structure, and optimal flow of a revenue schedule.
- Explore the reasons behind building a capacity constraint into a financial model and apply the techniques to do so.
Unit 4: Costs
- Examine the importance of forecasting both variable and fixed costs in a financial model.
- Practice the four steps to properly build up a cost schedule in any model.
- Discover how to back into the variable and fixed costs if they were not provided.
- Determine whether the company you are modeling is experiencing operating leverage.
- Explore the third category of costs—semi-variable costs—and how to incorporate them into a model.
- Examine the concept of “build it, then link it,” so that you can start building your financial statements.
Unit 5: Depreciation
- Examine the concepts and skills that are required to build a depreciation schedule.
- Discover the optimal design and structure of the depreciation schedule.
- Practice using the HLOOKUP function to display the CAPEX vertically on the depreciation schedule.
- Explore how to automate the HLOOKUP function so that it works when you add rows to your table.
- Practice using the SUMIF function to display the CAPEX vertically on the depreciation schedule.
- Study a few different ways to transpose data, which can be helpful on the depreciation schedule.
- Discover how to create the waterfall in the middle of the depreciation schedule.
- Examine how to fully depreciate CAPEX within the life of the financial model.
- Calculate depreciation expense using the declining balance method.
- Explore how to convert your depreciation schedule into a fixed assets (PP&E) schedule.
Unit 6: Income Tax
- Examine why it is important to create an income tax schedule in a financial model.
- Discover why companies don’t always pay their taxes as cash in the current period.
- Study an example to understand how to calculate current and deferred taxes on the financial statements.
- Practice building the income tax schedule within the financial model.
Unit 7: Working Capital
- Examine the working capital concepts that are required in a financial model.
- Explore the concept of working capital days and why this is so important in a financial model.
- Discover the design of and the steps required to build an effective working capital schedule.
- Practice how to automate the days per year on the working capital schedule.
- Calculate the historical working capital days and learn how to forecast the days in the future.
- Calculate the working capital balances in the forecast periods.
Unit 8: Capital Structure
- Examine the structure and discipline required to build effective debt and equity schedules.
- Explore the debt schedule and analyze the optimal order in which to build the schedule.
- Practice building up the cash section at the top of the debt schedule.
- Practice building up the long-term debt on the debt schedule.
- Discover the purpose of a revolver and the rules to build up a revolver in a financial model.
- Practice building up the revolving credit facility on the debt schedule.
- Practice building up the equity schedule in a financial model.
Unit 9: Financial Statements
- Discover how to build up the income statement within the financial model and practice the techniques demonstrated.
- Explore how to build up the cash flow statement within the financial model and apply the strategies demonstrated.
- Examine how to build up the balance sheet within the financial model and implement the methods demonstrated.
Unit 10: Outputs and Troubleshooting
- Explore the top 10 reasons that balance sheets in models don’t balance.
- Discover how to incorporate outputs into a model and how to create a powerful executive summary.
- Examine key techniques to ensure your model looks like a professional communication tool when printed.
Prerequisites
We recommend candidates have basic familiarity with the principles behind financial modeling or have completed the CFA Level I Financial Statements Analysis content.
