From the course: Financial Modeling Foundations

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Limits of financial models

Limits of financial models - Microsoft Excel Tutorial

From the course: Financial Modeling Foundations

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Limits of financial models

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- [Narrator] It's important to understand the limitations on financial models, and when you may run into problems trying to use them. The reality is that financial models are a tool. They're only as good as the user and the developer of that tool. If we make an error in developing the model, or an error in interpreting the output from that model, well we're going to run into problems. So what kind of errors may come up? Well, there are four particular areas you wanna pay attention to when it comes to financial models. First, is the risk of technical errors, errors related to the development of the model. These kinds of errors are technical in nature, and often result from the financial analyst going a little bit too quickly in trying to build out that model. The second type of issue you wanna pay attention to are inaccurate assumptions. Even if we have a 100% technically perfect model, inaccurate assumptions, can still lead to bad output, and thus bad decision making around that…

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