What is the purpose of a "financial model"?

A financial model serves primarily to project and analyze an organization's financial performance. This involves the creation of mathematical representations of a company's financial situation, which can be used to forecast future revenues, expenses, and profitability under various scenarios. Financial models typically incorporate historical data and assumptions about future conditions. They are essential tools in decision-making processes, aiding in budgeting, financial planning, investment analysis, and assessing the impact of potential business strategies.

While other functions like tracking regulatory compliance, managing human resources expenses, and evaluating market trends are important in their own right, they do not encapsulate the core purpose of a financial model. Instead, these functions may utilize insights derived from financial models to inform strategies within their specific domains, but they do not align with the primary role of projecting and analyzing financial performance.