The History of Financial Modelling
Early Economic Analysis
Financial modelling has a long history, dating back to the early 20th century. The earliest financial models were developed to analyse stock market data and make investment decisions. Over time, financial modelling has evolved to become an essential tool for businesses and financial professionals, used for a wide range of purposes, including budgeting, forecasting, and investment analysis.
One of the first financial models was developed by economist Irving Fisher in the 1930s. Fisher’s model was designed to forecast the behaviour of the stock market, using a complex set of equations to predict future prices.
The Explosion of Excel
In the 1950s and 1960s, financial modelling began to gain traction in the business world. During this time, the first computer-based financial models were developed, which allowed businesses to analyse large amounts of financial data more quickly and accurately than ever before. The development of spreadsheets, such as Lotus 1-2-3 and Microsoft Excel, in the 1980s further revolutionised the field of financial modelling, making it more accessible and user-friendly.
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In the 1990s and early 2000s, financial modelling became increasingly important in the world of finance as companies began to rely more heavily on financial models to make important business decisions. The rise of investment banking, private equity, and hedge funds also contributed to the growth of financial modelling, as these industries require sophisticated financial models to analyse potential investments and make informed decisions.
The Future of Financial Modelling
Today, financial modelling is essential for businesses and financial professionals in virtually every industry. It is used to analyse financial data, make investment decisions, forecast future performance, and much more. As technology continues to evolve, financial modelling is likely to become even more important in the future.
In the podcast episode below, I interviewed one of the founding fathers of financial modelling in South Africa. Hear how the first financial models were built using punch cards and more in this fascinating episode.