Financial Modeling Software: Exploring the Different Types and Their Benefits
Introduction
Financial Modeling Software is a tool used by financial professionals to develop a set of calculations, formulas and equations used to predict the financial performance of a business. It can be used to forecast the future performance of a company and make predictions on the financial behavior of its owners and managers. This can be seen as a type of decision-making tool which helps in understanding the risks and opportunities of a financial resource for the benefit of the decision maker.
The different types of financial modeling software include:
Spreadsheet-based Modeling Software
Database-driven Modeling Software
Cloud-hosted Modeling Software
Real-Time Modeling Software
Spreadsheet Software
Spreadsheet software is one of the most commonly used types of financial modeling software. This type of software provides basic data organization, calculation and graphing functions. It is a valuable tool for modeling investments and analyzing financial data.
Excel
Microsoft Excel is the most popular spreadsheet software used today. It is highly adaptable and can be used to perform basic data analysis, such as simple arithmetic calculations, as well as complex financial models. Excel is a great way to view data in an easy to understand visual format. It can also be used to create interactive charts, graphs, and other visuals.
Google Sheets
Google Sheets is another popular spreadsheet software program. Google Sheets is similar in function to Excel, but it has the added benefit of being cloud-based. This makes it easy for multiple users to collaborate on a financial model or project. Google sheets also comes with a variety of powerful features such as the ability to create pivot tables and use custom formulas, allowing users to create more powerful and complex financial models.
Database Software
Database software is designed to store, organize, update and retrieve large amounts of digital information. Database software is used to support many everyday activities, such as customer relationship management and inventory management. When it comes to financial modeling software, database software can come in handy while creating financial projections or analyzing performance metrics.
Microsoft Access
Microsoft Access is a database management system that is part of the Microsoft Office suite. It allows users to enter, store and manage data within a database, and analyze the data in various ways. It offers features for automating processes and making reporting easier, which is why financial modelers often choose this software.
MySQL
MySQL is a relational database management system (RDBMS). It is among the most popular databases in the world, and it is well-suited for financial modeling, due to its scalability and flexibility. MySQL can be used to quickly compile and analyze data from multiple sources. It has a wide range of tools, which makes it highly suitable for creating financial models.
Software Development Tools
Financial modeling software development tools provide a means for developing, analyzing and reporting financial information. The two main tools used by software developers are Python and R Programming, an open-source programming language.
Python
Python is a high-level programming language used by software developers to analyze, simulate and report financial data. It is a versatile language, that can be used to perform regression analysis, artificial intelligence and machine learning, to build web-applications and to create financial models. Python has a wide range of libraries specially designed for financial applications, such as Numpy, Pandas and Matplotlib.
R Programming
R Programming is a powerful language used by software developers for creating interactive visualizations, simulations and expressive graphics. R allows developers to analyze, transform and visualize financial data from sources like databases, spreadsheets and web-pages. It provides an extensive range of tools for financial analysis, such as time-series analysis, predictive modeling and correlation analysis.
R is also well-suited for building large-scale financial models, as it can handle millions of rows of data and can quickly generate results. Additionally, the extensive R libraries and tools, such as ggplot2, Shiny and dplyr, can streamline the development process of financial models.
Statistical Software
When it comes to managing data and analyzing relationships between variables, financial models rely on the use of statistical software. Statistically software enables the user to identify patterns and relationships among variables that are not easily spotted or understood intuitively. There are several popular statistical software packages widely used in financial modeling. Two of the most widely used packages are SPSS and SAS.
SPSS
SPSS (Statistical Package for the Social Sciences) is one of the most popular software packages for data analysis, modeling and reporting. It is designed for performing complex statistical analysis and using a graphical user interface, users of SPSS can interact with the data, create charts, and construct the sophisticated models for data analysis. It is widely used in the financial industry for analyzing complex relationships between different variables.
SAS
SAS (Statistical Analysis Systems) is another widely used statistical software package. This powerful statistical software system provides a wide range of statistical analysis and modeling capabilities. It is used by both industry professionals and academics, as it contains a powerful suite of predictive and data mining algorithms. SAS enables the users to perform a wide range of statistical analysis, including linear and nonlinear regressions, cluster analyses, and other advanced analytics.
Reporting Software
Reporting software is an essential tool for financial modellers and decision makers. It allows them to create visual reports and dashboards to easily visualize their data, gaining more insights into their financial models. The two most popular reporting software packages available are Tableau and Power BI.
Tableau
Tableau is a leading business intelligence and data visualization software for the financial modelling industry. With Tableau, users are able to combine data from multiple sources into a single view allowing them to monitor their financial models and make informed decisions. Tableau also offers advanced analytics such as predictive modelling, helping users predict and forecast their financial models. Tableau is user-friendly and is available in mobile and web versions.
Power BI
Power BI is a business analytics solution that helps financial modellers to take control of their data by transforming it into meaningful visual reports and dashboards. It offers users data connectivity and access to hundreds of data sources, enabling them to create real-time visualizations. Power BI features a drag-and-drop feature that allows users to quickly and easily create their visual reports. It also has an automated machine learning feature that allows users to be more productive when working with large datasets.
Conclusion
Financial modeling software is a must for any company or individual that needs to construct a financial model. By choosing the right software, you can create a robust and accurate financial model that will help you make the best decisions for your business or investments. Each software offers different features, so it’s important to weigh the pros and cons of the various types and choose the one that suits your needs best.
By analyzing the different types of financial modeling software, you can determine which type suits your needs best. Some of the available financial modeling software range from powerful enterprise modeling software to spreadsheet-based programs. Moreover, some financial modeling software come as part of an accounting or financial analysis software package. With these choices, you can be sure to find a financial modeling software that meets your needs.