What is one key use of financial models?

The key use of financial models is to forecast financial performance. Financial models are constructed to simulate the financial outcomes of various scenarios based on historical data and projected future events. These models can incorporate variables such as revenues, expenses, capital expenditures, and market conditions to provide a comprehensive view of a company's potential future financial health.

By accurately predicting trends in income, costs, and profitability, financial models aid decision-makers in evaluating investment opportunities, assessing the financial viability of projects, and strategic planning. This ability to project future performance is invaluable for stakeholders, as it informs budgeting, forecasting, and long-term business strategy.

The other choices, while relevant to financial practices, do not encompass the primary function of financial models. Setting interest rates for loans involves economic factors and regulatory frameworks rather than model forecasting. Preparing tax documents requires compliance and reporting processes rather than predictive modelling. Tracking daily expenses pertains more to accounting and management activities rather than the predictive capabilities offered by financial modeling.