From the course: Financial Modeling Foundations
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Applications of financial models
From the course: Financial Modeling Foundations
Applications of financial models
- [Instructor] There are many different ways to use financial models. The fundamental issue that we face with financial models is that it's hard to assess the risk around future cash flow projections. Now, we have different approaches to this. We have financial theory that can help us, we have mathematical models, we have practical market information we can turn to, but we can also directly evaluate this with financial models. And that's what we attempt to do. We try to capture the expected future cash flows and then a reasonable range of possibilities on what those cash flows might be using a financial model. Where is this important? Well, there's a variety of different applications for it. For one thing, in DCF analysis. We analyze discounted cash flows to value an asset. It's an extremely classic financial model. Another is M&A analysis, though. You might be evaluating the attractiveness of a corporate acquisition.…
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