2. Spreadsheet modelling
Any model needs a set of input values, a way to work on those input values and then provide one or more output values. This is the case no matter if you are doing it on a humble laptop or the world's biggest super-computer.
A spreadsheet can deal with a lot of numbers, do some work on them and produce some answers, so spreadsheets are ideal tools to use for straight-forward financial modelling.
You tweak an input value and you immediately see the effect it has on the output value(s)
A typical set of questions you may ask of a spreadsheet financial model would be :-
- "What will happen to my profit if I put up the price by 10%?"
- "If I reduce the number of staff by one, how will that affect the end of month profit?"
- "How many items do I need to sell before breaking even?"
- "what is the interest I will earn if my money goes into that savings account?"
It is a good idea to use a spreadsheet to make business decisions because:
- it allows you to keep testing different scenarios until you find one that suits your needs
- there is no financial risk to your business or staff
- you can see the result immediately rather than having to wait for a month/year in real life
challenge see if you can find out one extra fact on this topic that we haven't already told you
Click on this link: Spreadsheet Models