What is a financial model used for?

A financial model is specifically designed to quantitatively represent a company's financial performance, making it an essential tool for analyzing how various factors can impact a company's financial health and projections. This representation typically involves forecasting future revenues, expenses, cash flows, and overall financial metrics based on historical data as well as assumptions about future market conditions.

Financial models often encompass various components such as income statements, balance sheets, and cash flow statements, enabling stakeholders to visualize potential outcomes and make informed decisions regarding investments, budgeting, and strategic planning. As a result, they serve as a critical resource for financial analysts, investors, and management teams to evaluate scenarios and assess risk.

In contrast, while physical assets are important to a company, they do not correlate with the purpose of financial models. Similarly, creating marketing strategies and predicting employee performance, while valuable in their own contexts, are not the primary functions of financial models. These aspects pertain to different areas of business management and analysis, further highlighting the unique function of financial models in assessing financial viability and performance.