Corporate Financial Modeling Using Quantitative Methods

The purpose of this research is the application of quantitative methods in corporate financial modeling under uncertainty conditions. Most firms forecast their capital requirements by constructing pro forma financial statements. Pro forma financial statements are the base for using the additional funds needed (AFN) methodology to estimate capital requirements in a deterministic perspective. The question is if AFN methodology can also be employed in volatile financial data conditions, in order to enhance policy-making. By using Monte Carlo simulation and mathematical programming, it was found that the AFN formula is an appropriate methodology to calculate the capital requirements under uncertainty and thus apply any optimization techniques. The expected financial elements usually depend on various factors, so a quantitative range is more useful in financial planning. The importance of this research is that capital requirements forecasting can be used as an envelope of scenarios that can support financial planning and decision-making. Moreover, financial modeling becomes a useful tool in the restructuring planning processes for estimating base, adverse, and best business scenarios.