From the course: Financial Modeling Foundations

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Foundations of the model

Foundations of the model

From the course: Financial Modeling Foundations

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Foundations of the model

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- [Instructor] Financial modeling is both an art and a science. In particular when it comes to forecasting, what's gonna happen to a business in the future, you're unlikely to have exactly the right answer, right? So instead, financial modeling is about using your business judgment to come up with what is a reasonably likely set of outcomes to occur, and then making sure that you can adjust that model in the future as conditions do change. The financial forecast is the most subjective and important part in the valuation of a firm, and forecasting is critical to modeling. So let's talk about some different general approaches to financial forecasting. In particular, let's start with top-down analysis. With top-down analysis, as the name implies, we start at a high level. We start with the total addressable market or TAM, and then work our way down. We go from the total addressable market to the company's market share, to…

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