What Happens Inside a Financial Model Before a Deal Gets Done? A Beginner’s Look at Modern Finance 

A company is considering acquiring another business. 

The management team wants to know how much the acquisition could be worth. Investors want to understand whether the deal makes financial sense. Bankers need to estimate different outcomes. The buyer wants to know whether the combined company can generate enough cash to justify the price. 

Before anyone signs the final documents, there is usually a lot of work happening behind the scenes. 

And much of that work eventually finds its way into a financial model. 

For someone outside finance, a financial model can look like a giant Excel spreadsheet filled with formulas, numbers and assumptions. But professionals do not build these models simply because they like spreadsheets. A well-built model is essentially a way of asking structured questions about a business. 

What happens if revenue grows faster? 

What if costs increase? 

Can the company comfortably service new debt? 

What happens to the valuation if interest rates change? 

How much could the business be worth five years from now? 

These are the questions that turn a spreadsheet into a decision-making tool. 

So, what actually happens inside a financial model before a deal gets done? 

Let’s take a beginner-friendly look. 

It Starts With the Business, Not Excel 

One of the biggest misconceptions about financial modeling is that it starts with opening Excel. 

It doesn’t. 

It starts with understanding the business. 

Imagine a company is evaluating the acquisition of a regional food-delivery business. Before forecasting anything, an analyst needs to understand how that business actually makes money. 

Does revenue come from delivery fees, commissions or subscriptions? 

How many customers does it have? 

What is the average order value? 

How quickly are customers growing? 

What does it cost to acquire a customer? 

How much does the company spend on employees, technology and marketing? 

What happens when fuel prices increase? 

These questions matter because a financial model is only as sensible as the assumptions behind it. 

A model can have thousands of perfectly working formulas and still produce a poor conclusion if the person building it does not understand the underlying business. 

That is why modern financial modeling involves much more than Excel proficiency. 

Step 1: Collecting the Numbers 

Once the business is understood, analysts start gathering financial information. 

This can include: 

• Income statements 

• Balance sheets 

• Cash-flow statements 

• Annual reports 

• Investor presentations 

• Management forecasts 

• Industry data 

• Debt information 

• Capital expenditure plans 

• Working-capital information 

• Market and competitor data 

The historical financial statements provide the starting point. 

The analyst wants to understand how the company has performed before making assumptions about what could happen next. 

For example, if revenue has grown 8%, 10% and 12% over the past three years, an analyst cannot simply assume 25% growth for the next five years without a reason. 

There needs to be a business explanation. 

Perhaps the company is entering a new market. Perhaps it has launched a new product. Perhaps an acquisition is expected to increase revenue. 

The model should reflect the story of the business. 

Step 2: Turning Business Assumptions Into Numbers 

This is where things start getting interesting. 

Suppose management believes revenue could grow by 12% next year. 

That assumption goes into the model. 

But revenue is only one piece of the puzzle. 

The analyst also needs to think about: 

• Gross margins 

• Operating expenses 

• Taxes 

• Capital expenditure 

• Working capital 

• Depreciation 

• Debt 

• Interest costs 

• Cash generation 

A financial model connects these pieces. 

For example, higher sales may require additional inventory. More inventory could increase working capital. Higher capital expenditure could reduce near-term cash flow but potentially support future growth. 

One change can therefore affect several parts of the model. 

This interconnectedness is one reason financial modeling is so important in finance. 

CFA Institute’s current financial modeling curriculum similarly emphasizes forecasting revenues, costs, working capital, capital structure and linking financial statements together. 

Step 3: Building the Three-Statement Model 

For many finance professionals, the three-statement model is the foundation. 

It connects the: 

Income Statement 

This shows revenue, expenses and profitability. 

Balance Sheet 

This shows assets, liabilities and shareholders’ equity. 

Cash Flow Statement 

This shows how cash moves through the business. 

The important part is not simply preparing three separate statements. 

They need to connect. 

If the company earns more profit, that can affect retained earnings. If it buys new equipment, that can affect fixed assets and cash. If it borrows money, debt and cash both change. 

The model should capture these relationships. 

This is where someone taking a financial modeling course in Kolkata, for example, should ideally move beyond learning isolated Excel formulas and start understanding how financial statements behave as a system. 

A strong model is not just a collection of calculations. It is a connected financial picture of the business. 

Step 4: Forecasting the Future 

Historical data tells analysts where the company has been. 

The model is then used to explore where it could go. 

Forecasting might cover the next three, five or even ten years depending on the purpose of the analysis. 

But forecasting does not mean predicting the future with certainty. 

Instead, analysts build assumptions based on available information. 

For example: 

Base case: Revenue grows steadily and margins remain relatively stable. 

Upside case: The company gains market share and margins improve. 

Downside case: Growth slows, costs increase and cash generation weakens. 

This is where scenario analysis becomes particularly useful. 

Rather than asking, “What will happen?”, analysts can ask: 

“What could happen under different circumstances?” 

That is a much more useful question when making financial decisions. 

Step 5: Finding Out What the Company Could Be Worth 

Now we reach one of the most important parts of the model: valuation. 

A business can be profitable and still be a bad acquisition if the buyer pays too much. 

This is why valuation matters. 

One commonly used approach is discounted cash flow, or DCF. 

At a basic level, DCF attempts to estimate what a company’s future cash flows are worth today. 

The concept sounds simple. The practical work is not. 

An analyst has to forecast future cash flows, consider the appropriate discount rate and make assumptions about the company’s longer-term growth. 

CFA Institute describes DCF valuation as a method that values a company based on the present value of expected future cash flows. 

There is also comparable company analysis. 

Here, analysts compare a business with similar publicly traded companies using measures such as P/E or EV/EBITDA multiples. 

Precedent transactions can provide another perspective by looking at valuations paid in comparable deals. 

In practice, analysts may use multiple valuation methods rather than relying on a single number. 

The reason is simple: valuation is an estimate, not a magical answer produced by Excel. 

Step 6: Testing Whether the Deal Still Works 

Imagine the model says the target company is worth ₹500 crore. 

That sounds useful. 

But what happens if interest rates rise? 

What if revenue growth is 20% lower than expected? 

What if the buyer has to pay more for the acquisition? 

What if operating margins fall? 

This is where sensitivity analysis becomes valuable. 

The analyst can change key assumptions and observe how the final valuation or returns change. 

For example: 

Scenario	Revenue Growth	EBITDA Margin	Estimated Outcome
Downside	6%	16%	Lower returns
Base Case	10%	19%	Expected returns
Upside	14%	22%	Higher returns

The objective is not to find the scenario that looks most attractive. 

It is to understand the range of possible outcomes. 

A good model should make weaknesses visible rather than hide them. 

Step 7: The Deal Team Starts Asking Difficult Questions 

This is where financial modeling becomes much more than technical Excel work. 

Imagine an investment banker presents a model showing that an acquisition could generate attractive returns. 

Someone in the room may ask: 

“Why are you assuming 15% revenue growth?” 

Another may ask: 

“Why do margins expand after year three?” 

Someone else might ask: 

“What happens if the acquisition costs 10% more?” 

Or: 

“How much debt can the combined company actually support?” 

The model needs to help answer those questions. 

This is why finance professionals need to understand the logic behind every major assumption. 

Being able to build a formula is useful. 

Being able to explain why the formula is there is much more valuable. 

Step 8: From Model to Investment Decision 

Eventually, the spreadsheet has to leave the spreadsheet. 

The numbers are converted into conclusions. 

Depending on the transaction, the final analysis could help management decide: 

• Whether to pursue an acquisition 

• How much to offer 

• How the transaction should be financed 

• Whether the expected returns justify the risks 

• Whether the company can handle additional debt 

• Whether a proposed investment creates value 

The model does not make the decision. 

People do. 

The model gives them a structured way to understand the consequences of that decision. 

That distinction is important. 

Why Financial Modeling Is Becoming More Important in Modern Finance 

Finance is becoming increasingly data-driven. 

At the same time, automation and artificial intelligence are changing how analysts work. 

Some repetitive tasks can now be automated. Data can be processed faster. AI tools can assist with research and analysis. 

But that does not eliminate the need for financial modeling. 

If anything, it makes financial judgment more important. 

Someone still needs to decide whether an assumption makes business sense. 

Someone needs to understand why cash flow is changing. 

Someone needs to determine whether a valuation methodology is appropriate. 

Someone needs to challenge unrealistic projections. 

The future finance professional may spend less time doing repetitive spreadsheet work and more time interpreting what the numbers mean. 

That makes the ability to understand financial models even more valuable. 

What Should Students Look for in a Financial Modeling Course? 

For students and early-career professionals, the biggest mistake is choosing a course based only on the certificate. 

The better question is: 

“What will I actually be able to do after completing it?” 

A useful program should ideally cover areas such as: 

• Advanced Excel 

• Financial statement analysis 

• Three-statement modeling 

• Revenue and expense forecasting 

• Working-capital modeling 

• DCF valuation 

• Comparable company analysis 

• Scenario and sensitivity analysis 

• Investment banking applications 

• Real-world case studies 

The learner should also get opportunities to build models rather than simply watch someone else build them. 

That practical difference matters. 

If someone is researching the best financial modeling course in Kolkata, for instance, they should look beyond course duration and certification claims. The more important questions are whether the program provides practical modeling experience, teaches valuation and connects financial theory with real business situations. 

Where Financial Modeling Can Take a Finance Graduate 

Financial modeling is not limited to investment banking. 

The skill can be useful across several finance careers, including: 

Investment Banking 

Banking analysts use financial analysis and valuation to support transactions such as mergers, acquisitions, fundraising and other corporate finance activities. 

Equity Research 

Analysts build forecasts and valuation models to develop views on companies and their potential performance. 

Corporate Finance 

Companies use models for budgeting, forecasting, capital allocation and strategic planning. 

FP&A 

Financial planning and analysis teams use models to understand future revenue, costs, profitability and cash requirements. 

Valuation and Transaction Advisory 

Professionals may use financial models to estimate business values and evaluate transactions. 

This breadth is one reason financial modeling remains a practical skill for finance graduates. 

Why Practical Training Matters 

There is a noticeable difference between knowing what a DCF is and actually building one. 

There is also a difference between knowing the definition of working capital and understanding how a change in receivables affects cash flow. 

And there is a difference between memorizing valuation multiples and being able to explain why one company trades at a higher multiple than another. 

Practical training helps bridge that gap. 

At the Boston Institute of Analytics, financial education is positioned around applied learning across areas such as financial analytics, investment banking and financial modeling. For learners considering a financial modeling course in Kolkata, an industry-oriented approach can help connect classroom concepts with the kind of analysis used in professional finance environments. 

The goal should not simply be to produce another certificate. 

It should be to reach the point where you can open a model, understand what is happening inside it, change an assumption, understand the consequences and explain your conclusion clearly. 

The Real Skill Is Not Building the Spreadsheet 

This may be the most important lesson for anyone starting out. 

A financial model is not valuable because it contains thousands of formulas. 

It is valuable because it helps answer a business question. 

Should we acquire this company? 

What is this business worth? 

Can we afford this expansion? 

What happens if growth slows? 

How much debt can we take? 

Does this investment generate an acceptable return? 

Those are the questions sitting behind the spreadsheet. 

And that is why financial modeling remains one of the most useful technical skills for people entering modern finance. 

Final Thoughts 

The next time you see an investment banking deal announced, it is worth remembering that the headline number is only the visible part of the story. 

Behind that number may be months of analysis, forecasts, valuation work, scenario testing and discussions about what could go right or wrong. 

And somewhere in that process, there is usually a financial model helping people make sense of the possibilities. 

For aspiring finance professionals, learning to build such models is therefore not about becoming better at Excel alone. 

It is about learning how businesses work, how assumptions affect outcomes and how financial information can support better decisions. 

That is ultimately what makes financial modeling course such a valuable part of modern finance education. 

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