A financial model is a computer tool that models the sources of revenues, expenses, profitability, cash flow, staffing and other resources for a company. In the model, all of the components are linked together using business rules, constraints or formulas so that a change to one factor’s value reveals the impact on the other components of the model.
In its simplest form, it can be used to allow a company to replicate an income statement or balance sheet and to project financial results into the future by applying assumptions.
One of the most valuable uses of a financial model is to be able to perform a sensitivity analysis to identify the key drivers of financial success. This is accomplished by changing assumptions to reflect a proposed business action (such as increasing unit sales of a particular product line after executing a new marketing plan) and having the model compute the effect on costs, staffing and profitability. With repeated simulations, it is possible to determine the best actions a company can take to increase profitability and what resources will be required to carry out the actions (staff, money, etc.). The final step in this process is to assess the feasibility of each of these “best” actions to determine which actions to pursue.
Apollo can construct a financial model of your company, perform the sensitivity analysis to identify determine the best actions to take, help you evaluate each option and then assist you in the execution of the agreed to actions.