FINANCIAL MODEL AS A MANDATORY ELEMENT OF THE BASIS FOR MAKING MANAGEMENT DECISIONS
Abstract
The current state of research on the theoretical foundations of financial model development as a basis for informed managerial decision-making has been analyzed. The study identifies key practical challenges that arise when implementing financial modeling within the management process, including insufficient model standardization, limited access to reliable data, difficulties integrating financial models into existing management systems, and low staff competency in using such tools. The most commonly used types of financial models are characterized, including the Three-Statement Model, Forecasting Model, Budgeting Model, Discounted Cash Flow (DCF) Model, Merger and Acquisition (M&A) Model, and Leveraged Buyout (LBO) Model. Examples of practical applications for specific model types are provided. Such models can be used to support a wide range of managerial decisions, including: forecasting a company’s future financial position (including liquidity, profitability, and solvency); generating long-term financial projections based on key business drivers and assumptions; enabling operational planning for the upcoming year through the development of a detailed financial plan that helps identify cost-optimization opportunities or areas requiring additional investment; valuing a company based on projected future cash flows adjusted for the time value of money; calculating the financial implications of consolidating two or more companies; assessing the feasibility of acquiring a company under substantial debt financing, calculating investors’ internal rate of return (IRR), and developing a detailed debt amortization schedule, among others. The study examines the experience of leading global companies with respect to the types of financial models they employ in their practical activities (purpose of use, data inputs). For the purposes of this research, the financial model selected is one that can be applied within a retail chain specializing in household appliances and consumer electronics in order to assess the feasibility of implementing specific projects.
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