Financial models are mathematical representations used to forecast a company's financial performance. They typically incorporate various inputs, such as revenue, expenses, and market conditions, to project future outcomes. These models help businesses make informed decisions regarding investments, budgeting, and strategic planning. Common types of financial models include discounted cash flow (DCF) models, comparative company analysis, and leveraged buyout (LBO) models. Each model serves a specific purpose, allowing analysts to evaluate different scenarios and assess the potential risks and returns associated with financial decisions.