Now so far we have all been made familiar with how to make investments and what best methods would help us have the best choice of investment. Here there is another remedy for all your confusions. Yes, it is nothing but the financial model presented by a company that details a blueprint of how each asset of that particular company would perform when a financial situation is presented to them from the market. This is, in fact, a realistic understanding of the asset wherein there is a foreplay organized by the company to show and test the asset and its movements in the market which would be productive information to all the traders who plan to have their investments in the company.
How should a company do this?
A business or a financial model is basically the forecasted performance of the company through the performance of the asset. It is basically the assumptions made by the company expecting the business or the financial model to work and get executed in a particular way. Given below is a simple guide trying to explain the various different approaches to building a financial model.
- Bottom-up analysis – this approach is where the company starts from the market, ie, it starts monitoring the market traffic that would be created for a particular asset, then the market share it would have, and then monitors the market segments based on the number of customers, their preferences, needs, and expectations. Now, this information and facts would be slowly injected into the financial model plan.
- Regression analysis – now this is something that is done by comparing and contrasting the revenue of the business with the various market factors like market and demand for a particular asset or product, the price expected by a trader or a customer expectation with the help of Excel and its regression analysis.
- Top-down analysis – this is an approach just the opposite of the first one wherein a company first calculates its revenue for an asset or a product that is expected to be traded in the market and then tries to relate this to the market performance, customer reactions to the prices in the market etc…
- Year-over-year growth analysis – this is the most basic and the simplest form of analysis followed by a company in understanding the market.
These four are the most commonly used analysis by a company before they market their assets for trading or any other product or service for customer consumption.