Capital Budget Model Term Paper Example | Topics and Well Written Essays - 2500 words

Capital Budget Model - Term Paper Example Financial modeling as explained above is the task of creating a representation of a real financial situation in the world. It consists of the process of forecasting the performance of a financial portfolio or asset of a business through the use of a mathematical or scientific model in order to provide management of a business with adequate information to make informed decisions on the types of portfolio and assets to finance in the future. To understand more about financial models, it is important to critically review them and understand why they are important in today’s financial world. Let us begin with a critical review of financial models. Financial modeling consists of the process of forecasting the performance of organizations and assets, through the use of relationships among a number of variables. This provides the management of an organization with insight into the short-term and long-term environment of business in order summarize specific events to provide direction concerning possible alternatives or actions management can take to achieve set goals and objectives. Financial models can be created in numerous ways, either by the use of a pen and a paper, or computer software. What is most significant, however, is not the type of user interface that is used, but the fundamental logic that incorporates the model. For example, a model can summarize the returns of an investment, such as Sortino Ratio, or it may assist approximate the direction of the market, such as Fed Model.