Financial Modeling Software

Financial Modeling Software refers to a program or operating system designed in a way that portrays the relationship between finance and operation to study and examine the response of business in various favorable and unfavorable situations, evaluate the monetary implications of it well in advance, and arrive at conclusions for the best interest of the business in any given circumstances whether planned or unplanned.

Various types of financial modeling software are available in the market based on the specific needs of accounting, corporate finance, quantitative finance, or any other lines of business.

The feature of financial modeling software are as follows:

1. Exceptional Calculation Performance: The software makes complex calculations straightforward and can be quickly interpreted per the requisite business needs. These calculations are mostly error-free and keep the assumptions of present economic conditions intact, thus guiding better decision-making.
2. Next-Generation Business Plan: The software provides firms and analysts with various economic, financial, and operational scenarios, thus giving an insight into future business standards and planning. The software is also developed with various inbuilt security and controls to maintain data secrecy. This gives an upper hand advantage ahead of others in the market.
3. Enterprise Accessibility: This software is developed in such a way that it provides easy-to-access secured data and reports anywhere in the world to the users and customers of the firm. It also helps to merge other operational models with financial models for better analysis.
4. Huge Database: The software provides a platform that helps the firm store data and prepares as many models as required without the fear of data being lost or stolen.
5. Time Efficient: This software interprets and analyses any form of data in less time than manual workings. This resulted in an added advantage compared to time-consuming traditional reporting methods.

Many IT companies worldwide are working day and night to develop software with the latest technologies to outperform rival corporations and meet diversified business needs. Some of the financial modeling software that is available in the market are the following:

1. Oracle BI – developed by Oracle, provides end-to-end solutions for the financial supply chain.
2. Business Objects – developed by SAP, helps to analyze business intelligence data.
3. Hyperion – developed by Oracle, helps in financial management.
4. Operis – is an advisory that provides help and support for all business needs.
5. IBM Cognos – developed by IBM, which integrates business intelligence activities.
6. Quantrix –  Professionals use it to develop future planning, estimation, and budgeting.

The applications of financial modeling software are used in various levels of the organization, falling under the categories of purchase, material, human resource, accounting, controlling, finance, reporting, etc. Some of these applications are as follows:

#1 - Cash Flow

Cash flow prediction is an essential component of analyzing the going concern principle of an organization. The cash statement is nothing but a report that exhibits the financial strength and stability of the company based on available assets and liabilities awaiting to be discharged from the company.

#2 - Capital Budgeting

It is an estimation process to ascertain whether the assets or investments of the company are to be financed through debt or own funds. This process uses techniques such as net present value, internal rate of return, payback period, profitability index, etc. These techniques could take a lot of time manually, whereas the software provides a solution in minutes and gives an error-free report.

#3 - Financial Risk Modeling

It is a method that uses combinations of mathematics, arithmetic, and economics to determine the probable threats involved in a portfolio. The techniques used to develop a financial model are very time-consuming and involve a lot of assumptions with calculations. As an aid, financial modeling software shows results for market risk, value at risk, historical simulation with fewer resources, and fewer efforts.

#4 - Option Pricing

Option pricing is nothing but calculating the correct price of an instrument of an entity, like shares, debentures, etc. The calculations were based on assumptions related to intrinsic value and the time value of money. The Black – Scholes model, Monte Carlo methods, and financial models are used in these calculations.

#5 - Algorithmic Trading

Recently, this concept has been developed to use computers and software for automated programs. It is nothing but commands assigned to the computer to purchase or sell stocks in the share market when the desired criteria are met. The system automatically gets into the trade if desired criteria are satisfied based on existing market conditions. Financial modeling software is necessary to execute this because a human can never reach the speed of the system to finish this.

Financial modeling software is one of the few things on which both the corporates and government entities are dependent, both explicitly and implicitly. The output of this analysis is helpful in forecasting demand leading to better utilization of current resources, maximizing productivity, and eventually better delivery to the end consumers. If used optimally, it can potentially improve profitability multi-folds and hence improve an organization's long-term sustainability.

This has been a guide to Financial Modeling Software. Here we discuss features, top 5 examples of financial modeling software, and applications. You can learn more about it from the following articles –

• Financial Modeling Benefits
• Financial Modeling Templates
• Financial Modeling Interview Questions
• Financial Modeling in Excel