Financial Modeling Using Excel and VBA
Chapter One
Introduction to Financial Modeling
What is a financial model? What is the difference between a financial model
and the spreadsheet solutions you create or VBA programs you write all the
time to answer financial questions or solve financial problems?
A simple, practical answer is that a financial model is designed to represent
in mathematical terms the relationships among the variables of a financial problem
so that it can be used to answer "what if" questions or make projections.
Some of the spreadsheet solutions that people create capture some of these relationships
as well and, therefore, can answer "what if" questions to some extent.
But because they are not primarily designed with these objectives in mind, they
do not try to capture as many of these interdependencies as possible, and their
structures often make it cumbersome to answer "what if" questions or make projections
with them.
This may sound a little abstract. So let us look at a simple, concrete example.
Suppose you are using a spreadsheet to calculate, based on your taxable
income, what your after-tax income was last year. Income tax rates vary in steps
(brackets) for differen ... read full excerpt from Financial Modeling Using Excel and VBA ebook
