Like many other technical skills, a perfectly timed formal training intervention can make all the difference to your performance in the workplace. A good financial modelling course will inspire you: at the end of it, you will be convinced that you have the acquired the tools to make a real and long-lasting difference to your work.
A financial modelling course with weak content, poor delivery or the wrong instructor can leave you feeling confused and demotivated.
It’s essential that you are confident before, during and after a course that the barriers preventing you from learning what you need to learn are removed, one by one.
This guide will help you choose the right financial modelling course.
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Is now the right time to take a financial modelling course?
Financial modelling course participants often sign up for formal training at the following points:
- As part of a finance-focused induction programme;
- 2+ years’ experience, when the role demands a better approach to building spreadsheet models;
- In between roles, as a means of preparing for a new role (or to persuade a new employer that you are right for a role);
- 5+ years’ experience, when the role demands that you are adept at interrogating other people’s financial models; and
- Team-based (mixed experience), to raise the skill levels of colleagues who need to collaborate better with each other
For the best immediate benefit, it’s good to have some experience of building your own Excel spreadsheets and therefore some knowledge of the pain points. Then formal training is likely to be more effective since it is offering solutions to genuine problems that you have encountered.
How can I tell if a course is right for me?
There are any number of training providers that offer financial modelling courses. Distinguish between them by identifying:
- Niche providers (who probably build models themselves) vs providers that offer a wide range of courses (who may not build models themselves)
- One-person operations (where you are likely to be taught by that person) vs larger providers (who will draw from a much wider team of instructors with a mix of experience and specialisation)
- Practitioners (primary skill is building financial models; teaching is secondary) vs instructors (primary skill is managing an effective learning environment; building models is secondary)
- Which modelling methodology they advocate and how much detail is available on that methodology
- Whether the modelling methodology is supported by a publicly available modelling standard
- Core skills training (which can be applied to any sector) vs sector-specific training (which needs to be relevant to your current role)
Avoid confusing financial modelling courses with those that teach advanced Excel. It is possible to be an expert financial modeller and only use 5 per cent of what Excel has to offer. That’s not to say that an expert financial modeller is ignorant of the remaining 95 per cent.
An expert financial modeller is very selective in the tools that they deploy.
Can I teach myself financial modelling?
There are plenty of financial modellers who would describe themselves as self-taught. While it’s possible to solve financial modelling problems on your own initiative, there is a significant risk of:
- Losing sight of the bigger picture while solving specific problems
- Inventing a system that works for you but is difficult for others to understand
- Reinventing the wheel; or
- Inventing a bad wheel
Three classic characteristics of models built with poor design decisions are:
- Complex formulas (a function of both formula length and functions used);
- Remote cell references included in formulas – making the source difficult to trace and the model difficult to navigate; and
- Links to links (“daisy chains”)
A better approach is to work from a book. But financial modelling books tend to be either over– or under-ambitious in their aims. Plus working from an older edition may mean that latest good and best practices are missed.
A self-taught financial modeller who does not make use of generally accepted good practice is easy for others to spot. It can put them at a disadvantage.
How much prior experience do I need?
There are strong arguments for taking a course regardless of your level of experience:
- If you have no experience of financial modelling, then you are likely to adopt techniques taught with few questions. You are likely to wonder why people choose to do things in any other way.
- If you have some experience (self-taught, for example), then formal training will result in numerous light-bulb moments as detailed problems you have previously encountered will be resolved.
- If you are an experienced modeller, then you are likely to appreciate the benefits of a holistic and systematic approach. You will be able to compare the pros and cons of this approach with others you have encountered.
A good financial modelling instructor will manage the learning environment to cater well for different learning speeds and styles. Both the most experienced and least experienced should feel equally well-supported during a course.
What do I need to know about Excel?
It’s important to make the distinction between financial modelling (a set of skills and knowledge designed to support financial forecasting and decision-making) and Excel (the software platform that many financial modellers use).
A rudimentary knowledge of Excel (the menu ribbon, the grid and its cell references, the use of the $ symbol in fixing row and column references, and the SUM function) is easily sufficient before beginning a financial modelling course.
It’s also important to note that an advanced financial modelling course will not necessarily teach you advanced Excel. The challenge in financial modelling is to use Excel at its simplest to support complex modelling assignments.
How should I prepare before the course begins?
Good financial modelling courses will want to focus on modelling from the start of the course and not on troubleshooting computer issues. So:
- Make sure you are working on a computer you’re familiar with
- Raise any issues over keyboard layouts, keyboard languages and different language versions of Excel in advance
- Complete any pre-course work provided
- Download and install any additional productivity aids that might be made available
Do I need some background in accounting?
There’s no question that a working knowledge of the following topics will make things easier:
- Profit and loss / income statement (accruals accounting) vs cash flow statement (cash-based accounting), both being a measure of financial performance over time
- Balance sheet as a statement of position at a single date
- Core investment appraisal techniques: payback, net present value, internal rate of return
But the absence of such knowledge is not a serious barrier to progress, since a well-structured financial model will have at its heart a set of 3 dynamic financial statements, meaning that it is possible to learn accounting from financial modelling (and not financial modelling from accounting).
There’s no guarantee that a professional accountant must by necessity be a good financial modeller; nor do good financial modellers necessarily make good professional accountants.
What are the key topics that should be covered?
A core skills financial modelling course will tend to follow a standard road map:
- Excel proficiency / tips and tricks / modelling approach / focus on productivity
- 3 financial statements (income statement followed by balance sheet followed by cash flow statement)
- Discounted cash flow analysis and other output-based analysis (e.g. lender ratios)
- Sensitivities and scenarios
- Charts and graphs
- Quality control
A modelling course that is focused on greenfield investment opportunities (project finance, for example) will tend to work with forecast information only. An advanced topic will be how a pre-financial close model can be amended to accommodate actual performance (and thus become a post-financial close monitoring and management tool).
Courses focused on mergers and acquisitions, for example, will start with a set of historical financial statements (which, in turn, will drive the forecast assumptions).
What skills can I expect to develop?
In what Tom Grossman describes as “split-role modelling”, it’s worth identifying two core competence areas:
- Spreadsheet engineering, focused on how to manipulate Excel to achieve best results; and
- Conceptual modelling, focused on being able to describe to others in detail what you want to see from a spreadsheet engineer
Everyone joining a financial modelling course starts by thinking about the spreadsheet engineering. But the real lessons are to be learned from being a good conceptual modeller.
Other competence areas include:
- Proficiency in Excel
- Model design skills
- Model construction skills
- Model review skills
- Presentation of results
How important is it that the course should be sector-specific?
As a rule of thumb when building a model, 80% of the assignment will require boilerplate modelling. And that boilerplate modelling takes 20% of the project’s time.
To complete this part of the project, you need core skills that are not linked to a sector. These skills are based on good and best practice and – even better – a widely recognised modelling standard. As such, modelling a debt financing solution for an airport, for example, will have a high degree of crossover in comparison with a debt financing solution for a coal-fired power station.
Once you have acquired these core skills, you should move on to the 20% of the model that is not boilerplate (and which will take 80% of the build time). Sector-specific courses have a role to play here – and will often assume that you have already acquired the core skills from less sector-specific training.
Such courses will focus on the learning required to help you resolve the biggest challenges you are likely to meet.
How do the different learning methods compare?
The key financial modelling learning methods include:
- Teach yourself: included for completeness only, noting that plenty of financial modellers avoid formal training interventions altogether. The risk of learning being acquired inefficiently and with a sub-optimal outcome is high.
- Learn from a book: requires huge amounts of self-discipline.
- Learn from video-based online learning: requires self-discipline although video can be more engaging than a book. It is accompanied by a learning platform allowing downloads of examples, a support forum etc.
- Learn from live online tutorials: an instructor takes responsibility for scheduling and delivering formal training sessions – albeit remotely. Scope for bite-sized learning sessions spread over a number of days, allowing time for self-reflection and independent assignments.
- Learn in the classroom: an intensive, immersive experience which can be both transformative and exhausting.
- Learn by teaching: either by running sessions for your more junior colleagues or by becoming an instructor for a training organisation.
What sort of learning environment can I expect in the classroom?
Financial modelling training in a physical classroom benefits from:
- A careful choice of room with natural daylight and lots of space in which to spread out;
- A triangular sight-line between you / your screen, your instructor and your instructor’s projected screen; and
- A second instructor whose role is to help you when things are not working so well.
With live online tutorials, the choice of room and sight-line sits with you. A second instructor can still be invaluable – not least to comment on points of detail with a different perspective from the lead instructor.
What if I am going at a different speed to everyone else?
Learning to build financial models involves developing knowledge in layers and then making connections between those layers. It’s easy to get concerned that you might be slowest of the pack and are falling behind when it is simply a case that you learn quite differently from your colleagues.
A good financial modelling course will manage differentiated learning actively:
- More than one instructor (with a second instructor focused on helping individual participants and providing feedback to the lead instructor)
- Wide variety of teaching delivery methods
- Plenty of time in the course for questions and discussion
- Peer feedback and review
- Formal and informal assignments (to help a participant answer the question: “Am I ready to move on to the next stage?”); and
- Breaks between formal teaching sessions to encourage self-reflection
And if you have the opposite problem – you’re waiting for your colleagues to catch up with you – a good financial modelling course will:
- Use the case study to point you towards additional work; and
- Encourage you to help your neighbours (a form of peer review / encouragement)
What can I expect from my instructor?
A good instructor has the experience and expertise to establish a good learning environment regardless of the speed at which you learn or the learning style that you prefer.
As well as keeping engagement and energy levels high, an effective instructor will focus on two key areas:
- Your ability to recreate what has been modelled (and, as the course progresses, your ability to complete sections of the model unaided); and
- The contextual framework of what is being modelled: including making sure that the course tells a story / is heading to a specific goal
A good instructor will encourage questions and other interactions from course participants, seeking evidence that people are acquiring the confidence to work on their own.
Should I expect homework?
The intensive nature of course content means that you may simply want to rest after a day’s study.
Formal homework tends to be light – although there’s an implicit assumption that if you are fired up by your new skills then you will want to practise them. If you are really keen then you will want to attempt to re-model at home what you have completed that day in class.
Being set an assignment during the course is valuable since this encourages self-discovery. It’s a real test as to how much you have absorbed. And if your instructor sets the assignment with a deadline and immediate feedback, the effect on learning can be transformational.
What happens if I have questions after the course?
A good financial modelling course will offer a support forum that encourages you to keep the questions coming even after the formal course has been completed. Look for forums supported by those who model day-in, day-out.
Look for providers who are prepared to put together small worked examples for you – even if they were not covered on the course. Look for discussion forums where you can compare your questions with others being asked.
Excel formulas that are difficult to unpick may be put into search engines. Search engines can be a surprisingly good way of getting to grips with a complex formula and understanding the problem that it’s trying to solve (and potentially finding better ways to solve the problem).
What if I miss a topic / don’t understand what was being said?
Video-based learning is a good way of supporting you in topics where you missed key details. Seeing a video that covers the same learning you encountered in class is very reassuring. Look for video-based learning that:
- Is included in classroom-based delivery methods; and
- Has models available to download
It is common to record and make available online tutorials as part of live remote learning. These recordings have the added advantage of covering a live event that you attended.
What does it take to become an expert financial modeller?
The 70:20:10 rule states that:
- 70% of learning is internal and experience-based
- 20% is acquired through interacting with fellow employees; and
- Only 10% is through formal training courses
So financial modelling training is an effective kickstart and the right course will set a good direction, but there is much more to be done and that additional learning comes from real-world experience. Expect a learning curve: the first financial model built post-formal training will be the most time-consuming. After that, efficiencies begin to emerge as you make the distinction between 80% boilerplate : 20% assignment-specific modelling.
Formal certification can be a useful way of showing what you have achieved.
What does a path to success look like?
A good financial modeller is a fluent financial modeller. Fluency means that mechanical tasks are at your fingertips so you can build a model while:
- Having a conversation; or
- Watching television
The more serious point is that by committing so much to muscle memory (through repeated practice of a few routines), your brain is freed up to consider the tougher aspects of modelling: the 20% of an assignment that is not boilerplate.
You will know you’re on a path to success when you focus the majority of your effort on the specifics of a modelling assignment that make it difficult (knowing that you already have a tried-and-tested method to deal with everything else). For example, there is no need to design a scenario manager from scratch since there are plenty of models that have scenario managers. If they have been built using a financial modelling standard, then it is a trivial piece of work to transplant the model structure from one model to another.
Where can I find examples of good / bad / best practice?
Bad practice models are not well signposted on the internet, but they are not difficult to find. When seeking them out, remember the three characteristics of bad practice financial models found in the “Can I teach myself financial modelling?” section above.
Good and best practice financial models will have a look-and-feel that invites engagement from the model user. There are some available for free download especially if you seek out template models. Look for:
- Good design decisions at all levels: from the workbook itself (for example: no external data links) to the contents of a cell (for example: formulas that are short and simple to understand)
- A model that has been built with an end-user in mind (careful use of layout, white space, cell background and font formatting); and
- A model where transparency and consistency are highly valued. The model will be easy to navigate and you will be able to spot similarities in approach as you look through different sections in the model.
Check out the following links for examples of models (and styles of modelling) that we think demonstrate best practice.
It’s also worth checking the websites of industry regulators that are obliged to publish pricing models, such as Ofwat.
How can I extend my theoretical knowledge to support financial modelling?
If you can model something then you understand it. That’s because it’s difficult to fudge a result when working transparently with inputs, calculations and results. Because your model logic is on display for all to see, by adopting a specific approach you have – by implication – rejected all others.
So if you are studying for financial qualifications – Chartered Financial Analyst (“CFA”) for example – you can use your knowledge of financial modelling to confirm your understanding of financial topics. You might want to prepare simple models to calculate:
- Financial ratios
- Valuation techniques: net assets; dividend valuation model; PE ratios
- Net present value / internal rate of return
- Cost of equity: dividend yield + growth
- Cost of equity: Capital Asset Pricing Model (“CAPM”)
- Yield on debt / corporate bonds
- Weighted Average Cost of Capital (“WACC”)
- Modigliani & Miller: theories of capital structure
- Value creation: shareholder value analysis
- Black Scholes Option Pricing
And the relationship between practical financial modelling and financial theory works both ways. For example, if you are assessing different financing structures for a company and deciding on an optimal way forward, it can be helpful to support that way forward with reference to the relevant financial theory (Modigliani & Miller springs to mind).