FINANCIAL MODELS

Abstract

The idea of using models is not a new one, but it is an idea that kept the interest of many researchers in different fields of activity for a very long time now. The present paper looks at models starting from the very general forms (divided according to the way they are expressed or to the kind of research they support) to the ones that are specific for the financial field. Financial models are useful as they give managers and other categories of users the possibility to innovate, manage and plan the financial information. The paper provides a theoretical approach to financial models and their importance in the management of different companies. Financial models are very technical instruments that have to be exact enough in order to provide the users with accurate results regarding the financial state of the company. They give users the possibility to examine both past and future events and the quality of the financial decisions highly depends on them. Models that are not based on reality lead to wrong decisions that are incorrect and have adverse effects. Models generate the decision support information. The financial models are based on the normal, natural succession of processing information regarding the transactions and their effects. Such models offer the possibility to imagine what would happen in case of different decisions without having to expose the company to the associated risks of those decisions. Of course that models also have certain shortcomings and they have to be revised all the time. The model used generates results that need to be analyzed, explained and applied. The financial models are applied in order to facilitate the financial decision and the choice of one model over another highly depends on the results the manager expects to obtain and on the degree of exactitude expected.

Keywords

• financial model, information, decision, information flow, decision making