The Bottom Line:

  • Financial models are like crystal balls for businesses - they give a glimpse of what the future might hold.
  • We build these models using spreadsheets and crunch the numbers from a company's past financial reports (think quarterly updates).
  • To guesstimate future finances, we take a peek at the company's history and plug that info into the model.
  • The key things we look at are how much money the company is bringing in (revenue), how much they're spending (expenses), and how much profit they're making (earnings). We even consider how much profit is trickling down to each share of stock (earnings per share).