When is financial modeling typically used?

Financial modeling is typically employed to assist in planning business expansions. This is because financial models provide a framework to analyze various scenarios related to growth, investment, and operational changes. When a company considers expanding its operations—whether through new product lines, entering new markets, or increasing capacity—it relies on financial modeling to project future revenues, costs, and profitability associated with those efforts.

This process helps businesses understand the potential financial implications of their expansion strategies, including how new operational structures or market demands might affect their overall financial health. It allows decision-makers to evaluate different strategies and make informed choices based on anticipated outcomes.

In contrast, the other contexts mentioned do not predominantly involve detailed financial modeling. Employee reviews focus more on performance assessments rather than financial projections. Preparing tax returns requires accurate data but not necessarily the complex forecasting and scenario analyses that financial models provide. Daily cash flow management might use simpler financial tools or spreadsheets to track cash movements but does not typically involve the extensive predictive analytics found in financial modeling for larger business decisions like expansion.