With the growing trends, organizations look forward to improving efficiency, decreasing costs, and optimizing strengths. A good approach is the financial modeling outsourcing tasks to third-party service providers. This approach gives the companies an opportunity to leverage the services of experts who can analyze and interpret data for them with limited capital investment.
Financial Modeling Outsourcing: A Master Weapon
Financial Modeling is essential in the formulation of strategies, investment decisions, and assessing the performance of an organization which is costly and time-consuming and depends on the expertise and resources available. Thus, the application of outsourcing allows obtaining high-quality models and professional services, while the models and other service-providing personnel adhere to modern methodologies and requirements.
Types of Financial Models
Financial modeling is one of the crucial parts of research for valuing and analyzing the business. Outsourcing helps the internal team of buy-side and sell-side firms to build and update the financial models that will save their time, effort, and cost. Different models are constructed to serve various purposes, although some major types of financial models that are highly popular in financial modeling outsourcing are as follows:
Discounted Cashflow Model (DCF)
The versatility technique of this model is used in valuing any business but is highly popular in valuing real estate and any other business in which future cash flows can be predicted. The major requirements to build a DCF model are:
Unlevered free cash flow
Also known as free cash flows to the firm, brings consistency in the model’s result as it does not depend on the capital structure of the company. Different companies require different modifications while calculating these cash flows, in some cases working capital is not a major value driver but for some, this can be a critical factor.
Discounting rate
After the projection a percentage is required to discount these flows to bring the present worth of the cash flows. The percentage represents the weighted average cost of capital which will carry the weightage of all capital sources like equity, debt, and more.
Terminal value
The value is an outcome of the first cash flow of the company and its cash flow growth rate and discount rate in the terminal period.
Leverage Buyout (LBO) Model
These models are the most complex structured models used to evaluate potential LBO deals. The model extensively includes analysis of various financial components, which majorly involve:
Acquisition Structure
This part holds some major information and analysis like the amount of debt to be raised, the purchase price of the acquisition, and the contribution of equity from the investor group or acquiring company.
Key Financial Metrics
Apart from IRR the financial model outsourcing also reveals and studies various other financial metrics such as debt service coverage ratio and cash-on-cash multiple to determine the viability of the transaction for the acquisition.
Sensitivity Analysis
To identify and analyze the potential risks associated with the investment.
Exit Strategy
Different strategies like initial public offering or sale out to another buyer and more are considered in the model.
Consolidation Model
The combination of the parent company’s financial statements with its subsidiary companies gives a 360-degree view of the financial soundness of the business. Two major parts of the process are:
Eliminating intercompany transactions
Based on double-entry logic the process of consolidation eliminates the possible risk of one-sided entries. Intercompany debt, Intercompany revenue and expenses, and Intercompany stock ownership are three intercompany eliminations that are used to reverse the entry to zero effect.
Consolidating financial statements
By integrating and combining all the financial statements of parent and subsidiaries to draft a set of standardized financial statements.
Option Pricing Model
The mathematical structure of this model reveals the theoretical price of the options. Financial teams majorly use this model to value the employee stock options and to manage risk related to currency fluctuations, prices of the commodities, and interest rates. There are three main types of option pricing models:
The Black-Scholes model
The model is used for European options by assuming volatility and risk-free rate constant.
Monte Carlo Simulation
The model is based on random sampling and is used for pricing options that are exotic or complex in nature.
The Binomial model
This model uses a tree-like structure to evaluate and analyze the options.
Market Growth and Trends in Financial Modeling Outsourcing
Financial modeling outsourcing is one of the common trends that can be observed in small or big organizations since it is rather effective in presenting budget forecasts, revealing workflow needs for funds, and planning strategic development.
Market Growth of Financial Modeling Outsourcing
Technological Integration
The adoption of AI, ML, and big data analytics is enhancing accuracy and efficiency in financial models. According to the statistics, about 80% of financial organizations are using or planning to use RPA for the automation of routine work in financial fields so that finance specialists can concentrate on value-added work.
Client Satisfaction
According to a 2024 Financial Recovery Technologies survey, 96% of clients are satisfied with outsourced financial modeling services. This satisfaction has led to more business with firms renewing or increasing their contracts.
Market Growth
It is forecasted that the financial modeling outsourcing market will touch $512.4 billion, at the global level by 2030. The IT outsourcing segment is concerned to increase from $460.1 billion in 2023 to $777.7 billion by 2028. The factors that will continue to ‘fuel’ this type of sector include the demand for cheap services and the development of technology.
Widespread Adoption
Various industries such as financial services, healthcare, technology, and real estate are now outsourcing the financial modeling task to capitalize on the expertise and technical tools.
Geographical Diversification
India, Philippines and Eastern Europe outsourcing destinations offer qualified workforce at cheaper rates, which makes this area ideal for financial modeling outsourcing.
Magistral’s Services on Financial Modeling Outsourcing
Magistral Consulting is the top Outsourcing Financial Modeling Company that specializes in providing different services for different clients.
Unparalleled Expertise
Magistral’s competent workforce has adequate knowledge of the current standards, regulations, and trends in financial modeling.
Tailored Solutions
Magistral expert analysts develop the revenue forecast, cost structures, investment and profitability appraisals, and sensitivity analysis based on the client’s strategic objectives.
Cost-Effectiveness and Scalability
It is important to note that organizations that outsource their financial modeling from Magistral recoup much more than if they were to employ and maintain a team of financial modelers, and all this with scalable solutions.
Confidentiality and Data Security
Magistral is committed to the protection of the client’s data, following strict rules of data protection, as well as maintaining the confidentiality of the information at all stages.
Quality Control and Assurance
The commitment of Magistral to high quality is reflected in validation checks and conformity to market trends for realistic and credible financial models.
Magistral Consulting offers a cost-efficient yet highly elaborated outsourcing option for financial modeling. We engage our clients in the development of solutions, guarantee data protection and adhere to the highest quality standards. Therefore our approach gives strategic advantage to business organizations that we deal with.
About Magistral Consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com
Why one should choose Magistral for financial model outsourcing?
Magistral holds talents with years of experience in the field of finance. Our seasoned professionals apply their deep industry knowledge to provide clients with tailored, cutting-edge solutions designed to meet their unique needs.
How does Magistral help in ongoing support for financial models?
With its specialized workforce Magistral provides expert insights and a high-quality support without any additional overhead cost of hiring and training internal staff.
How does Magistral ensure the accuracy in financial modeling?
Magistral follows standardized methodologies to make the financial model clean and consistent based on logical assumptions and validation techniques.