Unit 1.

Financial
Modelling
By Ankita Upadhyay
  Basics of Excel,
 commands of Excel,
 conditional formatting,
Topics  formulas,

covered  macros,
 what if analysis- goal seek, data table and scenario manager,
 pivot table and charts,
 data analysis.
  A software program created by Microsoft that uses spreadsheets to
organize numbers and data with formulas and functions.
 Excel analysis is ubiquitous around the world and used by businesses
of all sizes to perform financial analysis.
 Uses of MS Excel- Excel is typically used to organize data and
perform financial analysis. It is used across all business functions and
at companies from small to large. The main uses of Excel include:
 Data entry
 Data management
Basics of Excel  Accounting
 Financial analysis
 Charting and graphing
 Programming
 Time management
 Task management
 Financial modeling
 Customer relationship management (CRM)
 Almost anything that needs to be organized!
  Excel is used extensively in finance and accounting functions. In
fact, many organizations run their entire budgeting, forecasting,
and accounting functions entirely out of Excel spreadsheets.
 While Excel is defined as a “data” management tool, the data that
Financial and is most commonly managed is financial.

accounting  While there are other pieces of financial software that are tailored
toward performing specific tasks, the strongest point about Excel
uses is its robustness and openness. Excel models are as powerful as
the analyst wishes them to be.
 Accountants, investment bankers, analysts, and people in all types
of financial career paths rely on excel to perform their daily job
functions
  Excel documents are called workbooks. Each workbook has
sheets, typically called spreadsheets. One can add as many sheets
as it want to a workbook, or One can create new workbooks to
keep their data separate.
Create a new  Click File, and then click New.
 Under New, click the Blank workbook.
workbook
  Click an empty cell.
 For example, cell A1 on a new sheet. Cells are referenced by their
Entering the location in the row and column on the sheet, so cell A1 is in the
first row of column A.
data  Type text or a number in the cell.
 Press Enter or Tab to move to the next cell.
  On a worksheet, select the cell or range of cells that you want to add a border to, change the
border style on, or remove a border from.
 On the Home tab, in the Font group, do one of the following:
 To apply a new or different border style, click the arrow next to Borders , and then click a border style.
 Tip: To apply a custom border style or a diagonal border, click More Borders. In the Format
Cells dialog box, on the Border tab, under Line and Color, click the line style and color that you want.
Under Presets and Border, click one or more buttons to indicate the border placement. Two diagonal
border buttons are available under Border.
 To remove cell borders, click the arrow next to Borders , and then click No Border .

 The Borders button displays the most recently used border style. You can click
the Borders button (not the arrow) to apply that style.
 If you apply a border to a selected cell, the border is also applied to adjacent cells that share a
Apply cell bordered cell boundary. For example, if you apply a box border to enclose the range B1:C5, the
cells D1:D5 acquire a left border.
 If you apply two different types of borders to a shared cell boundary, the most recently applied
borders border is displayed.
 A selected range of cells is formatted as a single block of cells. If you apply a right border to the
range of cells B1:C5, the border is displayed only on the right edge of the cells C1:C5.
 If you want to print the same border on cells that are separated by a page break, but the border
appears on only one page, you can apply an inside border. This way, you can print a border at
the bottom of the last row of one page and use the same border at the top of the first row on
the next page. Do the following:
 Select the rows on both sides of the page break.
 Click the arrow next to Borders , and then click More Borders.
 Under Presets, click the Inside button .
 Under Border, in the preview diagram, remove the vertical border by clicking it.
  Select the cell or range of cells that you want to add a border to.
 Tips: To quickly select the whole worksheet, click the Select All
button. Select All button

Format a
worksheet  On the Home tab, in the Font group, click the arrow next to
Borders Button image, and then click the border style that you
want.
  Select the cell or range of cells that contain (or will contain) the
text that you want to format. You can also select one or more
portions of the text within a cell and apply different text colors to
those sections.
 To change the color of text in the selected cells, on the Home tab,
in the Font group, click the arrow next to Font Color Button image,
Change text and then under Theme Colors or Standard Colors, click the color
that you want to use.
color and  Note: To apply a color other than the available theme colors and
standard colors, click More Colors, and then define the color that
alignment you want to use on the Standard tab or Custom tab of the Colors
dialog box.

 To change the alignment of the text in the selected cells, on the

Home tab, in the Alignment group, click the alignment option that
you want.
  When numbers are added in the worksheet, One might want
to add them up. A fast way to do that is by using AutoSum.
 Select the cell to the right or below the numbers, you want to
add.
Use AutoSum  Click the Home tab, and then click AutoSum in
the Editing group.
to add your
data
 AutoSum adds up the numbers and shows the result in the cell
selected.
  Select a cell within your data.
 Select Home > Format as Table.
Create and  Choose a style for your table.

format tables  In the Create Table dialog box, set your cell range.
 Mark if your table has headers.
 Select OK.
  Adding numbers is just one of the things you can do, but Excel can
do other math as well. Try some simple formulas to add, subtract,
multiply, or divide your numbers.
 Pick a cell, and then type an equal sign (=):
Create a  That tells Excel that this cell will contain a formula.
 Type a combination of numbers and calculation operators, like the
simple plus sign (+) for addition, the minus sign (-) for subtraction, the
asterisk (*) for multiplication, or the forward slash (/) for division.
formula  For example, enter =2+4, =4-2, =2*4, or =4/2.

 Press Enter.
 This runs the calculation.
 You can also press Ctrl+Enter if you want the cursor to stay on the
active cell.
 To distinguish between different types of numbers, add a format,
like currency, percentages, or dates.
 Select the cells that have numbers you want to format.
 Click the Home tab, and then click the arrow in the General box.

Apply a
 Pick a number format.
Number
Format
  The Quick Analysis tool (available in after Excel 2013) let one total
Show totals the numbers quickly. Whether it’s a sum, average, or count one
want, Excel shows the calculation results right below or next to
for your the numbers.
 Select the cells that contain numbers you want to add or count.
numbers  Click the Quick Analysis button Quick Analysis button in the bottom-

using Quick
right corner of the selection.
 Click Totals, move your cursor across the buttons to see the
Analysis calculation results for your data, and then click the button to apply
the totals.
  Conditional formatting makes it easy to highlight certain values or
make particular cells easy to identify.
 This changes the appearance of a cell range based on a condition
Conditioning (or criteria).
Formatting  You can use conditional formatting to highlight cells that contain
values which meet a certain condition. Or you can format a whole
cell range and vary the exact format as the value of each cell
varies.
  Select the range of cells, the table, or the whole sheet that you
want to apply conditional formatting to.
 On the Home tab, click Conditional Formatting

Conditional
Formating
 Do one of the following:
To highlight Do this
Values in specific cells. Examples are dates after this Point to Highlight Cells Rules or Top/Bottom Rules, and
week, or numbers between 50 and 100, or the bottom then click the appropriate option.
10% of scores.
The relationship of values in a cell range. Extends a band Point to Data Bars, and then click the fill that you want.
of color across the cell. Examples are comparisons of
prices or populations in the largest cities.

The relationship of values in a cell range. Applies a color Point to Color Scales, and then click the scale that you
scale where the intensity of the cell’s color reflects the want.
value’s placement toward the top or bottom of the
range. An example is sales distributions across regions.
A cell range that contains three to five groups of Point to Icon Sets, and then click a set.
values, where each group has its own threshold. For
example, you might assign a set of three icons to
highlight cells that reflect sales below $80,000, below
$60,000, and below $40,000. Or you might assign a
5-point rating system for automobiles and apply a
set of five icons.
  Select the range of cells, the table, or the whole sheet that you
want to apply conditional formatting to.
Apply  On the Home tab, click Conditional Formatting.
conditional  Conditional Formatting button

formatting to
 Point to Highlight Cells Rules, and then click Text that Contains.
text
 Type the text that you want to highlight, and then click OK
  Select the range of cells, the table, or the whole sheet that you
Create a want to apply conditional formatting to.

custom  On the Home tab, click Conditional Formatting.

 Conditional Formatting button
conditional
formatting  Click New Rule.
rule  Select a style, for example, 3-Color Scale, select the conditions
that you want, and then click OK.
  Commands are actions that you can perform in Excel, such as opening,
closing, editing, or formatting documents. Commands can be called by
using the menu, the ribbon, the keyboard shortcuts, or the mouse.
Commands can also be linked to control objects, such as buttons, or
triggered by events, such as opening a workbook. Commands can
display dialog boxes and interact with the user. Commands cannot be
used in formulas, and they are not calculated by Excel.
Commands of  In Excel, commands have the following characteristics:
 They perform actions in the same way that users do.
Excel  They can do anything a user can do (subject to the limits of the interface
used), such as altering Excel settings, opening, closing, and editing
documents, initiating recalculations, and so on.
 They can be set up to be called when certain trapped events occur.
 They can display dialog boxes and interact with the user.
 They can be linked to control objects so that they are called when some
action is taken on that object, such as left-clicking.
 They are never called by Excel during a recalculation.
 They cannot be called by functions during a recalculation.
  There are many commands in Excel that you can use to perform various tasks and actions. Some of the
most common commands are:
 Copy and Paste: These commands allow you to copy the contents of one or more cells and paste them into another
location. You can use the keyboard shortcuts Ctrl+C and Ctrl+V, or the right-click menu, or the Home tab on the
ribbon to access these commands.
 Undo and Redo: These commands allow you to reverse or repeat the last action you performed in Excel. You can use
the keyboard shortcuts Ctrl+Z and Ctrl+Y, or the Quick Access Toolbar, or the Home tab on the ribbon to access these
commands.
 Edit Cell: This command allows you to edit the contents of the active cell. You can use the keyboard shortcut F2, or
double-click the cell, or the formula bar to access this command.
 Select All: This command allows you to select all the cells in the current worksheet. You can use the keyboard
shortcut Ctrl+A, or the Select All button in the upper-left corner of the worksheet, or the Home tab on the ribbon to
access this command.
Most common  Insert Function: This command allows you to insert a function into a cell or a formula. A function is a predefined
formula that performs a specific calculation or returns a value based on the arguments you provide. You can use the
keyboard shortcut Shift+F3, or the Insert Function icon (fx) on the formula bar, or the Formulas tab on the ribbon to

commands of access this command.

 Find and Replace: This command allows you to search for a specific text or number in a worksheet or workbook, and
replace it with another text or number. You can use the keyboard shortcut Ctrl+H, or go to Home > Editing > Find &
Select > Replace to access this command

MS- Excel  Sort and Filter: These commands allow you to arrange and display your data in a certain order or based on certain
criteria. You can use the Sort and Filter icons on the Home tab on the ribbon, or the right-click menu, or the Data tab
on the ribbon to access these commands.
 Freeze Panes: This command allows you to lock the rows or columns that you want to keep visible while scrolling
through the rest of the worksheet. You can use the Freeze Panes icon on the View tab on the ribbon to access this
command.
 Format Cells: This command allows you to change the appearance and properties of the cells, such as font,
alignment, number, border, fill, and protection. You can use the keyboard shortcut Ctrl+1, or the right-click menu, or
the Home tab on the ribbon to access this command.
 Print: This command allows you to print your worksheet or workbook. You can use the keyboard shortcut Ctrl+P, or
the File tab on the ribbon, or the Quick Access Toolbar to access this command

 These are just some of the basic commands in Excel. There are many more commands that you can explore
and learn by using the menu, the ribbon, the keyboard shortcuts, or the mouse. You can also customize the
Quick Access Toolbar and the ribbon to add your favorite commands for easy access..
Functions
  SUM: This formula adds up all the numbers in a range of cells. For example,
=SUM(A1:A10) returns the sum of the values in the range A1:A10.
 AVERAGE: This formula calculates the average (mean) of a group of numbers
in a range of cells. For example, =AVERAGE(B1:B10) returns the average of
the values in the range B1:B10
 COUNT: This formula counts the number of cells that contain numbers in a
range of cells. For example, =COUNT(C1:C10) returns the number of cells that
have numbers in the range C1:C10.
 MIN: This formula returns the smallest number in a range of cells. For
Formulas example, =MIN(D1:D10) returns the minimum value in the range D1:D10.
 MAX: This formula returns the largest number in a range of cells. For example,
=MAX(E1:E10) returns the maximum value in the range E1:E10.
 IF: This formula performs a logical test and returns one value if the test is true,
and another value if the test is false. For example, =IF(F1>10,”High”,”Low”)
returns “High” if the value in F1 is greater than 10, and “Low” otherwise.
 VLOOKUP: This formula looks up a value in the first column of a table and
returns a corresponding value from another column in the same row. For
example, =VLOOKUP(G1,H1:J10,3,FALSE) returns the value from the third
column of the table H1:J10, where the value in the first column matches the
value in G1. The FALSE argument indicates an exact match is required.
  XLOOKUP: This formula is a newer and more powerful version of VLOOKUP,
that can look up a value in any column of a table and return a corresponding
value from any other column in the same row. It also has more options to
handle errors and missing values. For example,
=XLOOKUP(G1,H1:H10,J1:J10,”Not found”,-1) returns the value from the
column J1:J10, where the value in the column H1:H10 matches the value in G1.
The “Not found” argument specifies the value to return if no match is found,
and the -1 argument indicates a reverse search from the bottom of the table.
 INDEX: This formula returns the value of a cell at a given position in a range of
cells. For example, =INDEX(K1:K10,5) returns the value of the fifth cell in the
range K1:K10.
Formulas  MATCH: This formula returns the relative position of a value in a range of cells.
For example, =MATCH(L1,M1:M10,0) returns the position of the value in L1 in
the range M1:M10. The 0 argument indicates an exact match is required
 SUMIF: This formula adds up the values in a range of cells that meet a given
condition. For example, =SUMIF(N1:N10,”>100”,O1:O10) returns the sum of
the values in the range O1:O10, where the corresponding values in the range
N1:N10 are greater than 100.
 COUNTIF: This formula counts the number of cells in a range of cells that
meet a given condition. For example, =COUNTIF(P1:P10,”Yes”) returns the
number of cells in the range P1:P10 that contain the text “Yes”.
  SUMIFS: This formula adds up the values in a range of cells that meet multiple conditions. For
example, =SUMIFS(Q1:Q10,R1:R10,”A”,S1:S10,”B”) returns the sum of the values in the range
Q1:Q10, where the corresponding values in the range R1:R10 are equal to “A” and the
corresponding values in the range S1:S10 are equal to “B”.
 COUNTIFS: This formula counts the number of cells in a range of cells that meet multiple
conditions. For example, =COUNTIFS(T1:T10,”>=50”,U1:U10,”<=100”) returns the number of
cells in the range T1:T10 that have values between 50 and 100, inclusive.
 CONCATENATE: This formula joins two or more text strings into one text string. For example,
=CONCATENATE(V1,” “,W1) returns the text that combines the values in V1 and W1, separated
by a space.
 LEFT: This formula returns the leftmost characters of a text string, based on a specified number
Formulas of characters. For example, =LEFT(X1,3) returns the first three characters of the text in X1.
 RIGHT: This formula returns the rightmost characters of a text string, based on a specified
number of characters. For example, =RIGHT(Y1,4) returns the last four characters of the text in
Y1.
 MID: This formula returns a substring of a text string, based on a specified starting position and
number of characters. For example, =MID(Z1,2,5) returns the substring of the text in Z1, starting
from the second character and spanning five characters.
 LEN: This formula returns the length of a text string, in terms of the number of characters. For
example, =LEN(AA1) returns the number of characters in the text in AA1.
 TRIM: This formula removes any extra spaces from a text string, leaving only single spaces
between words. For example, =TRIM(AB1) returns the text in AB1, with any leading, trailing, or
multiple spaces removed.
  A macro is an action or a set of actions that you can run as many
times as you want.
Macros  When you create a macro, you are recording your mouse clicks
and keystrokes. After you create a macro, you can edit it to make
minor changes to the way it works.
  Macros and VBA tools can be found on the Developer tab, which is
hidden by default, so the first step is to enable it. For more
information, see Show the Developer tab.

Creating,
recording a
macro
  In the Code group on the Developer tab, click Record Macro.
 Optionally, enter a name for the macro in the Macro name box,
enter a shortcut key in the Shortcut key box, and a description in
the Description box, and then click OK to start recording.

Record a
Macros
 Perform the actions you want to automate, such as entering
boilerplate text or filling down a column of data.
 On the Developer tab, click Stop Recording.
 To run a macro, one of the following methods can be used:
 Press the keyboard shortcut that you assigned to your macro.
 Click on the button or shape that you assigned to your macro.
 Click on the Macros button on the Developer tab and select the
Run a macro macro that you want to run from the list. You can also edit or
delete your macros from this window.
 Use the Run Macro dialog box by pressing Alt + F8 on your
keyboard. You can then select the macro that you want to run and
click on Run.
  What-if analysis in Excel is a feature that allows to test different
values for one or more variables and see how they affect the
outcome of the formulas or calculations.
 What-if analysis can used to explore various scenarios, optimize
What if the results, or perform sensitivity analysis.
analysis  There are three types of what-if analysis tools in Excel:
 Scenario Manager,
 Goal Seek,
 and Data Table.
  Scenario Manager: Scenario Manager allows one to create and compare multiple
scenarios based on different values for one or more variables. For example, one
can use Scenario Manager to see how one's profit changes when one varies the
revenue and cost of one's business. One can also create a summary report that
shows the results of all one's scenarios in one table. To use Scenario Manager, one
needs to go to the Data tab, click on What-If Analysis, and select Scenario
Manager. One can then add, edit, or delete scenarios, and choose the cells that one
wants to change. One can also name each scenario and assign a shortcut key to it.
To see the results of a scenario, one needs to select it and click on Show.
 Goal Seek: Goal Seek allows one to find the value of a variable that makes a
Types of What- formula equal to a specific goal. For example, one can use Goal Seek to find out
how many units one needs to sell to achieve a certain profit. To use Goal Seek, one
needs to go to the Data tab, click on What-If Analysis, and select Goal Seek. One
If Analysis can then enter the cell that contains the formula, the goal value, and the cell that
one wants to change. Click on OK and Excel will show one the result.
 and Data Table: Data Table allows one to create a table of values that shows how
the outcome of a formula changes when one varies one or two variables. For
example, one can use Data Table to see how one’s monthly loan payment changes
when one varies the interest rate and the loan term. To use Data Table, one needs
to have a base formula in a cell, and then enter the values for one or two variables
in a range of cells. One can then select the range of cells that contains the formula
and the values, go to the Data tab, click on What-If Analysis, and select Data Table.
One can then specify the row input cell or the column input cell for one’s variables.
Excel will fill the table with the results of the formula for each combination of
values.
  Using Scenario Manager, we can make changes to multiple
variables. For each change, we can create scenarios and compare
one against another. Below are some of the key features of
Scenario Manager.
Scenario  We can create different scenarios every time there is a change in a
particular variable or multiple variables.
Manager  We can create up to 32 scenarios.
 We can create a summary of all the scenarios by combining all the
scenarios in the worksheet.
 We can give names to each scenario as per user requirements.
  Select the cells that contain the values that you want to change in
different scenarios. These are called changing cells. For example, if you
The steps used want to compare different sales projections based on different growth
rates, you can select the cells that contain the growth rates.
to obtain  Click the Data tab on the ribbon and then click the What-If Analysis
results using button. Select Scenario Manager from the drop-down menu. This will
open the Scenario Manager dialog box.
what-if  Click the Add button to create a new scenario. Give your scenario a
name and specify the changing cells for that scenario. Click OK. Then,
analysis in enter the values for the changing cells in the Scenario Values dialog
box. Click OK. Repeat this step for each scenario that you want to
Excel with create.

Scenario  To view a scenario, select it from the list in the Scenario Manager
dialog box and click the Show button. This will change the values in
Manager are as your worksheet according to the scenario. You can also create a
summary report that shows the results of all scenarios in a separate
worksheet. To do this, click the Summary button in the Scenario
follows Manager dialog box and choose the type of report that you want.
Click OK.
  The goal seek analysis is a feature in Excel that allows you to find the input value
that produces a desired output value by changing one variable cell. For example,
you can use goal seek to find the interest rate that you need to get a certain
monthly payment for a loan. Here are the steps to use the goal seek analysis in
Excel:-
 Select the cell that contains the formula that you want to adjust. This is the cell that has
the output value that you want to change. For example, if you want to change the
monthly payment for a loan, select the cell that has the PMT function.
 Click the Data tab on the ribbon and then click the What-If Analysis button. Select Goal
Seek from the drop-down menu. This will open the Goal Seek dialog box.
 In the Set cell box, enter the reference for the cell that contains the formula that you
want to adjust. This should be the same cell that you selected in step 1.
 In the To value box, enter the desired output value that you want to achieve. For
Goal Seek example, if you want to pay $900 per month for a loan, enter 900.
 In the By changing cell box, enter the reference for the cell that contains the input value
that you want to change. This is the cell that has the variable that affects the output
value. For example, if you want to change the interest rate for a loan, select the cell that
has the interest rate.
 Click OK to start the goal seek analysis. Excel will try to find the input value that
produces the desired output value by changing the variable cell. If Excel finds a solution,
it will display the Goal Seek Status dialog box that shows the original and the new values
for the set cell and the changing cell. You can click OK to accept the solution or Cancel to
restore the original values.
 If Excel cannot find a solution, it will display the Goal Seek Status dialog box that shows
the message "Goal Seek may not have found a solution." You can click OK to keep the
values that Excel found or Cancel to restore the original values.
  Data tables are a feature in Excel that allows you to perform what-if analysis on a given data set.
You can use data tables to see how changing one or two variables in a formula affects the
results. For example, you can use data tables to compare different loan scenarios based on
different interest rates and loan amounts. Here are the steps to create data tables in Excel:
 First, you need to have a model or a formula that you want to test with different inputs. For
example, if you want to calculate the monthly payment for a loan, you can use the PMT function
with the loan amount, interest rate, and number of periods as inputs
 Next, you need to create a table with the input values that you want to test. You can create a
one-variable data table or a two-variable data table depending on how many variables you
want to change. A one-variable data table has one row or column of input values and a two-
variable data table has two rows or columns of input values. For example, if you want to test
different interest rates for a loan, you can create a one-variable data table with a column of
interest rates. If you want to test different interest rates and loan amounts, you can create a
two-variable data table with a row of interest rates and a column of loan amounts.
Data tables  Then, you need to link the output cell to the table. The output cell is the cell that contains the
formula or the result that you want to see. For example, if you want to see the monthly
payment for a loan, you need to link the cell that has the PMT function to the table. To do this,
you need to select the cell at the top left corner of the table (the intersecting cell of the input
values) and enter the reference to the output cell. For example, if the output cell is B5, you
need to enter =B5 in the intersecting cell of the table.
 Finally, you need to convert the table into a data table. To do this, you need to select the entire
table, including the input values and the output cell reference. Then, you need to go to the
Data tab on the ribbon and click on the What-If Analysis button. Select Data Table from the
drop-down menu. This will open the Data Table dialog box. In the dialog box, you need to
specify the column input cell or the row input cell depending on the type of data table you
have. The column input cell or the row input cell is the cell that variable that you want to change
in the formula. For example, if you want to change the interest rate in the PMT function, you
need to enter the cell that has the interest rate in the column input cell or the row input cell
box. Then, click OK. Excel will fill the table with the results based on the different input values.