FINANCIAL MODELING
Why Aspiring Leaders Should Learn to Build Financial Models By Ian Schnoor, CFA, CFM, Executive Director, Financial Modeling Institute
While financial models have become the most important decision-making tools in all areas of finance, the need for strong modeling skills is critical for another reason: Financial modeling is key to fostering critical thinking and promoting leadership development. In a fast-paced, data-driven business world, leadership is defined by more than strategic vision. It is marked by the ability to analyze complex information and guide teams with clarity and confidence. Consider this: A three-statement financial model, integrating the income statement, balance sheet, and cash flow statement, is not just a technical exercise. It is a framework for telling the story of a company: where it has been, where it is today, and where it could go. When you can build and understand a company’s financial model, you become the author of that story. As a result, you become the one to whom others
turn for insight, guidance, and leadership. Recognizing the importance of these capabilities, CFA Institute introduced Practical Skills Modules (PSM) to the CFA Program. One of the first modules to launch was the Financial Modeling PSM, due to the wide array of roles that rely on financial models to inform business decisions. So, let’s explore the power of developing financial modeling skills.
Financial modeling: A communication tool for leaders The model as the company’s narrative
A well-built financial model is more than rows of numbers and formulas. It tells the story of a company’s operations, financial health, and strategic potential. 14
A well-built financial model is more than rows of numbers and formulas. It tells the story of a company’s operations, financial health, and strategic potential. It connects data points into a coherent narrative that everyone, from executives and board members to investors and lenders, can understand and act on.
By piecing together these elements, the modeler crafts the company’s financial story. And in doing so, that individual becomes the person colleagues, decision-makers, and external stakeholders rely on for understanding and insight.
Model design as a communication strategy Have you ever worked with a financial model that someone else built? Did you open the file and wonder what the heck was going on? This happens to all of us. And it’s not your fault. This is because the model was not designed well. A good modeler may spend as much time planning and designing the financial model as building it. Why? The way a model is designed plays a role in how effectively it communicates the company’s story. Think of a financial model as a financial presentation. When a model resembles a PowerPoint deck, with a cover page, executive summary, assumptions, and scenarios, the reader can easily follow the story. When the reader—likely your boss or your client, or a prospective lender or investor—can follow the story, they feel confident about your work. With a well-designed model in hand, you can communicate outputs and recommendations with poise, confidence, and assurance.
From data to strategy
• Where are the risks and opportunities?
Building a financial model is an exercise in strategic communication. It challenges you to take complex, sometimes messy data, and present it in a way that informs and persuades. A model helps stakeholders evaluate trade-offs, explore scenarios, and make decisions with confidence.
• How do operational decisions translate into financial outcomes?
When you learn how to model, you aren’t just developing great technical skills—
The person who builds the model gains a deep understanding of the business and can answer questions like: • What are the key drivers of performance?
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2025 CFA Society Toronto. All rights reserved. The Analyst | Fall 2025