The Financial Modelling Industry

In recent years, "Financial Modelling" in the sense of developing an integrated business plan has evolved into a thriving field for specialised consultants. This article portraits the main players.

In the context of a financial transaction, it is common to hire external advisors to develop the financial model. In fact, it has become more common is recent years. Especially banks, but also private equity investors, demand solid figures on which to base their investment decisions. The market is mainly divided into the following groups of players:

  • The "Big 4" audit firms: Although it is hard to get any specific figures, the Big 4 firms (like Ernst & Young) are usually perceived as the market leaders in financial modelling. Due to their size and variety of services offered to clients, they have the knowledge and experience to develop complex financial models for most industries. Plus, their audit and tax service lines allow them to include specific issues into a model which other advisors might not be aware of. A typical Big 4 service that is rarely provided by other firms are model reviews, i.e. the advisor will review the correctness of an existing model for the client.
  • Smaller and pecialised advisory firms: For certain industries or modelling purposes, there will often be a number of smaller, specialised advisory firms.
  • Strategy consulting companies: Strategy consulting companies (like McKinsey) sometimes offer financial modelling services, but it is rarely considered one of their core competences. If they are assigned with modelling work, it is usually in the context of other services, e.g. a corporate restructuring.
  • Investment banks: Investment banks usually have the capacity and manpower to develop highly complex financial models. After all, this is one of the cornerstones of their equity research departments, in particular. However, they usually do not offer modelling services to external parties, but rather develop these models for their own use in a financial transaction.

 

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