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Financial Modeling: Implement Financial Models in Excel – Book Review

Anyone who is interested in understanding and applying financial modeling would be advised to read the excellent Financial Modeling, 4th edition by Simon Benninga. The primary intent of this book and it’s previous editions has been to use Excel to develop and implement financial models.

The author has added six additional chapters in the 4th edition of the book. The chapters cover material on financial calculations, cost of capital, value at risk, real options, early exercise boundaries and term structure modeling. A chapter with Excel hints is an added resource.

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The first six chapters of Financial Modeling cover numerically intensive corporate finance problems.Chapter 1 introduces Excel usage for financial calculations. Chapter two undertakes explaining the concept of discounted corporate cash flows. Building pro forma models comes under the ambit of chapter 3. Chapter 4 deals with how to use a pro forma model for valuation of a firm.

The financial analysis of leasing is discussed in chapter 6. While chapter five details basic lease/purchase decisions employing the equivalent loan method.Financial analysis of leveraged lease agreements is the focus of chapter 6.

The areas covered in the book are:

Basic financial calculations, calculating the cost of capital, financial statement modeling, using financial statement models for valuation, financial analysis of leasing, financial analysis of leveraged leasing, introduction to portfolio models, calculation of the variance -covariance matrix, calculation of efficient portfolios with no short sale restrictions, estimating betas and security market line, efficient portfolios without short sales, value at risk, introduction to options, binomial option pricing model, lognormal distribution, Black-Scholes model, portfolio insurance, real options, early exercise boundaries, bonds and duration, user-based functions with Visual Basic for applications, types and loops, macros and objects.

Simon Benninga is currently the Professor of Finance at the Tel Aviv University and the Academic Director of the Sofaer International MBA program that he founded. He has published four books that have sold over 200,000 copies. His books are available in Japanese, Russian, Polish, Chinese, Italian, Spanish, Persian and Vietnamese.

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