Overview of Financial Modeling Careers
Excel modeling skills are becoming increasingly popular for financial analysts looking to advance their careers and move up the ladder. Companies are increasingly looking for professionals who can take raw data, organize it, make assumptions, forecast, analyze, and generate recommendations and insights. While this type of analysis has traditionally been associated with investment banking careers, it is becoming increasingly widespread and should be considered a baseline skillset for more finance jobs. This guide will review a list of the top 10 financial modeling careers in the industry.
List of Top 10 Financial Modeling Careers:
#1 Investment banking
Investment banking is typically thought of as the original financial modeling career. Investment bankers routinely build Excel models to value companies for mergers and acquisitions (M&A), capital raising (debt, equity, Initial Public Offerings, follow-on offerings, etc), and advisory mandates. Their clients include large public companies, private equity firms, private corporations, institutions, and governments around the world. As an investment banking Analyst or Associate, you’ll be spending most of your time in Excel building complex models.
#2 Equity research
Equity research analysts and associates spend plenty of time in Excel. They are often busying building financial models, performing company analysis, and research an industry. All of this work comes together in the form of a report that’s sent to clients of the bank who use it to decide if they should invest in a public security or not. Because professionals in equity research spend so much time analyzing companies, they naturally spend a lot of time in Excel creating models. This is another career path that really requires too Excel skills.
#3 Financial planning and analysis (FP&A)
Essentially all large operating companies have a department called financial planning and analysis (FP&A). The group is responsible for forecasting the company’s performance, comparing it to actual results, and monitoring the cash flow of the business. Analysts, Managers, and Directors in FP&A departments have to perform complex financial modeling and analysis to ensure the company is well funded and can plan for the future. Additionally, they place a high importance on evaluating and assessing performance.
#4 Corporate development
Corporate development groups usually only exist at very large companies (usually public ones). These professionals are responsible for mergers, acquisitions, divestitures, and capital raising for the company. They are the counter-part of investment bankers, usually working very closely with them on transactions. In order to executive these transactions, Cor Dev professionals need to have extremely good financial modeling skills. In some cases, they rely on bankers to build the models, but in many cases, they build them themselves from scratch or using a corporate template.
#5 Private equity
Private equity (PE) is referred to as being on the “buy side” (compared to investment banking which is on the “sell side”) as they acquire businesses and hold them for a long time. Private equity professionals usually build spreadsheets for a leveraged buyout (LBO), which requires complex capital structure modeling. The concept is to use as much debt (leverage) as possible to increase the levered internal rate of return (IRR) for the transaction. While private equity jobs are less common to come by, those working in the industry spend a lot of time on financial modeling.
#6 Venture capital
Venture capital (FC) firms make early-stage investments in high growth companies and sometimes use financial models to estimate the value of the businesses. Since the companies they invest in are so early state, they don’t always use models, but you will definitely find instances where they do. The approach here is to focus on the market opportunity (size of the potential market) and the unit economics of the businesses (what is the revenue model, cost structure, etc). This type of financial modeling often focuses on the company’s burn rate (the rate at which it loses cash) in the short term.
#7 Commercial banking
Professionals working in investment banking don’t usually make full-blown three statement models or discounted cash flow (DCF) financial models. Instead, they usually analyze the company’s ability to service debt and satisfy the lender’s credit metrics and covenants. Good Excel skills are definitely an asset in commercial banking careers, but the job doesn’t require the highest degree of complexity.
#8 Real estate development
Real estate developers have to build very detailed models to determine how profitable a real estate development project is. This requires building a traditional cash flow analysis and calculating the internal rate of return (IRR) of the project. This analysis also needs to take into account the degree of leverage and bank financing that’s required to complete the development. If you’re planning to have a junior to a mid-level career with a developer you will need solid financial modeling skills.
#9 Mezzanine finance
Mezzanine lenders provide capital that ranks between debt and equity in the capital stack of a business. They take more risk than traditional lenders but assume less risk than common equity investors. In order to assess opportunities and deals, they need to build valuation models that take into account both the debt and equity features of their investments. Many mezzanine finance companies will receive warrants in a business, which can convert into equity ownership and needs to be factored into their analysis.
Anyone running a startup needs to have an operating model that forecasts the company’s revenue, expenses, and cash flow into the future. Since startups usually burn cash in their early years it’s especially important to make sure the company has enough runway to survive before their next round of financing. Responsibility for financial modeling at a startup usually falls on the shoulders of the founders, the CFO, or whoever runs the finance team.
FMVA – Financial Modeling Careers Certification
To accelerate any of the above financial modeling careers it can be helpful to have a formal designation. This shows employers you’ve got the skills they’re looking for and can deliver the type of analysis they want you to be performing on day one.
To learn more about the Financial Modeling and Valuation Analyst (FMVA)™ program and corporatefinance.org, please explore these additional resources: