What are the types of financial models?

So, what are the types of financial models, anyway? Ugh, right? I’ve wrestled with a few myself, and let me tell you, sometimes they feel like trying to decipher ancient hieroglyphics. Seriously.

The main ones I’ve bumped into? Well, there’s the three-statement model – income statement, balance sheet, and cash flow statement all tangled together. It’s a monster, a beautiful, terrifying monster. I remember the first time I tried to build one… it took me, like, a week, and I still wasn’t entirely sure I’d done it right. I ended up pulling my hair out.

Then there’s discounted cash flow (DCF) analysis – you use that to figure out how much a business is actually worth. It’s all about projecting future cash flows and then discounting them back to today’s value. Sounds simple, huh? It’s not. I once tried to use a DCF model to value my friend’s tiny bakery – estimating future cupcake sales proved WAY harder than I thought. I mean, how do you predict cupcake demand?!

And of course, there’s the IPO model. Oh boy, that one. Thinking about taking your company public? That’s the model you’ll be using to determine how much your company is worth. And let me tell you, the pressure is intense. It’s exciting, sure, but also absolutely terrifying when you’re staring at a number that supposedly represents the culmination of years of sweat and stress. You’re essentially telling the world, “This is it! This is our worth!” It’s a lot of weight.

These models are super helpful – don’t get me wrong – but they’re also incredibly complicated. Unless you’re a finance guru (which I definitely am not), they can feel like a steep learning curve. Honestly, sometimes I feel like I’m just pushing numbers around, hoping for the best. But hey, that’s finance, right? A little bit of magic, a whole lot of math, and a prayer.