Financial Modelling 123

Financial
Modeling
Handbook
Second Edition
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TABLE OF CONTENTS
1. Finance Ratios
2. Depreciation Methods
3. Top 10 Excel Functions
4. Inventory Valuation
5. What is BETA?
6. Options Pricing
7. Top Finance KPIs
8. Top Finance Certificates
9. Finance Terms Explained to Kids
10. Excel Shortcuts
11. 17 Financial Modeling Tips & Tricks
12. Top 5 Excel Features
13. Conditional Formatting Guide
14. Typical Excel Mistakes
15. How ChatGPT Can Simplify Excel Workflow?
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Finance
Ratios
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LIQUIDITY RATIOS
Current Ratio
Current Assets Benchmark: at least
Will we have enough money
Current Liabilities 1.00, preferably 2.00
to pay suppliers?
Quick Ratio (Acid Test)

Will we be able to pay our Current Assets - Inventory
Benchmark: 0.5 - 1.00
suppliers in the near future? Current Liabilities
Absolute Liquidity Ratio

How much of our suppliers' debts Cash and its equivalents
Benchmark: 0.05 - 0.20
will we be able to cover with the Current Liabilities
funds in the account?
Do not include such items in your calculations:

- short-term loans from owners,
- payments of the next period,
- unpaid dividends,
- short-term loans to owners,
- liabilities for unused leave, etc.
BUSINESS ACTIVITY RATIOS
Debtor Days
How quickly do our debtors pay us Average Debtors x365
after the transaction? Turnover
Inventory Days
How fast can we sell our stock Average Inventory x365
after purchase? COGS
Creditor Days
How long do our suppliers allow Average Creditors x365
them to not pay for stocks after Purchases
purchasing them?
Cash Conversion Cycle
How long is cash tied up in inventory
Inventory Days + Debtor Days - Creditor Days
before the inventory is sold and cash
is collected from customers?
To calculate average receivables or stocks, the average between the year-start and year-end balance sheets is
used. Accordingly, these indicators are significantly affected by the closing balance! It is worth following them
every month in your company.
Turnover's cost of sales is not equal to production cost - the cost of purchasing and delivering items must be
taken into account.
Accounts payable should only be used for trade receivables. Depending on the situation, the bank's short-term
liabilities, which are taken directly to finance inventories, can be used.
All turnover figures are measurable in days.
1
PROFITABILITY RATIOS
Average Markup
Turnover
What is the average transaction COGS
markup for this company?
Gross Margin
Gross Profit
How many percent remain in
Turnover
circulation after covering all
production costs?
EBITDA Margin or Operating Margin

EBITDA
How many percent remain in circulation Turnover
after covering all operating costs?
Net Margin
Net Profit
How many percent remain in circulation
Turnover
after covering all costs?
Return on Assets
EBIT
How profitable are the total Average Assets
assets in the company?
Return on Equity
Net Profit
How profitable is the owners'
Average Equity
investment in the company?
All averages are measured as the average between the beginning and the end of the year. The
calculation of equity should also include owner loans to the company, unpaid dividends, deferred
CIT, provisions, etc.
CAPITAL STRUCTURE RATIOS
Equity Ratio
Do we have enough of our own Total Equity
Benchmark: >20%
money in the company? Total Assets
Comparison rate
It is worth calculating only for competitors - % payments
what could be their interest rate in the bank? Average loan
You know your own % rate from credit balances
agreements.
2
Debt-Service Coverage Ratio (DSCR)
EBITDA
Do we earn more than we have to pay the Benchmark: >120%
bank? % + principal
payments
Debt/EBITDA
Benchmark: <4.00, for
In how many years would the company be Bank loans balance
long-term real estate
able to return all its loans to the bank? EBITDA projects - more.
To calculate the average balance sheet ratios (assets, loan balances), the average between the
beginning and the end of the year balance sheet is used. Accordingly, these figures are affected by
the closing balance (but not as significant as receivables, inventories or trade receivables)! It is worth
following them every month in your company.
EBITDA = earnings before interest, taxes, depreciation and amortization
EBITDA = net profit + CIT + % payments + depreciation + amortization
ALTMAN Z-SCORE
Z-Score
What is the probability of bankruptcy
Z=1.2A+1.4B+3.3C+0.6D+1.0E
of the company?
Z <1.8. Very high 1.8 < Z <2.7. Moderate Z > 2.7. Minimal probability
probability of bankruptcy probability of bankruptcy of bankruptcy in the next 2
in the near future in the next 2 years years
Working Capital Share of working

A. Proportion of working capital Total Assets capital in assets
Retained Earnings Proportion of retained

B. Proportion of retained Total Assets earnings in assets
earnings
Earnings Before
Interest and Tax EBIT to asset ratio
C. EBIT Yield
Total Assets
Market Value of Equity

Equity to liabilities ratio
D. Equity versus liabilities Total Liabilities
Sales Asset turnover ratio

E. Movement of assets Total Assets
3
Depreciation
Methods
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Top 10 Excel
Functions
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Financial Modeling in Excel
10 Excel functions you should know
=SUMIFS()
SUMIFS function adds all of its arguments that meet multiple criteria.
For example, you would use SUMIFS in your financial model to sum up
the sales of (1) a specific employee (2) for a specific product.
=SUMIFS
(sum range (e.g. sales),
criteria range 1 (e.g.
employee),
criteria 1 (e.g. Tim),
criteria range 2 (e.g.
Product),
criteria 2, (e.g. Chairs))
Know your IFs, COUNTIFs, AVERAGEIFs and all other IFs too - after all,
financial modeling is just a series of IFs that could happen in this world.
=IFERROR()
Use IFERROR function to format your financial models. The function
checks for errors and returns the value specified by the user if found.
The function checks for the following errors: #N/A, #VALUE!, #REF!,
#DIV/0!, #NUM!, #NAME? or #NULL!.
=IFERROR(value, value_if_error)
=XIRR()
Internal rate of return metric is needed to find out the annual growth
rate of an investment. The higher the IRR, the better the investment
(keeping all other factors the same, of course). IRR is good for
comparing different investment opportunities.
=XIRR(cash flow values, dates of cash flows)
=XNPV()
Finance is money and we all know that money today is worth more than
tomorrow. Financial analysts oftentimes have to calculate the value of
an investment/company/project in today’s terms.
=XNPV(discount rate, cash flow values, dates of cash flow)
Unlike IRR and NPV, XIRR and XNPV functions allow for payments at irregular intervals
=PMT()
PMT function calculates the payment for a loan based on constant
payments and a constant interest rate. You have to know the present loan
value, number of periods and the interest rate. PMT, PPMT and IPMT
functions are needed to figure out annuity loan repayments (e.g. mortgage)
=PMT(interest rate, number of periods, present value)
=PMT() =PPMT() =IPMT()

calculates calculates calculates the
periodic the payment interest
payment for on the princi- payment on
a loan in total pal for a loan the loan
=SLOPE()
If you’re into investment banking, at some point you’ll have to calculate the
Beta of a stock, which means volatility. By using the SLOPE function in Excel,
you’ll find it easily by using the returns of the stock and the comparative
benchmark index.
=SLOPE
(% of equity change range,
% range of change of index)
=XLOOKUP
Lookup functions are a must to know for any modeler. They are used to
quickly and easily find data in a table, for example, to find the amount
sold by an employee, ID number, and thousands of other things.
=XLOOKUP(what do you want to look up, where can it be found,

what do you want to return)
=INDEX() & MATCH()

Sometimes, XLOOKUP won’t do the job, as it can only compare one
array with another one. Index and Match function combination can look
up values in the whole table - it’s 2 Dimensional.
=INDEX
(what you want to return,
=MATCH
(what are you looking
for, where can it be found)
=EOMONTH()
EOMONTH function finds the last day of the month after you add a specific
number of months to a date. It’s useful for calculating maturity dates or due
dates that fall on the last day of the month. It also aids in setting up your
financial model.
=EOMONTH
(start_date,
months you want
to add/substract)
=EDATE() will aid in

adding months to a
specified start date
=SEQUENCE
The SEQUENCE function allows you to generate a list of sequential numbers
in an array. SEQUENCE function works great if you need to generate a list of
10,000 numbers in a column.
=SEQUENCE (number of rows you want to generate, number of

columns you want to generate, starting point, step)
Inventory
Valuation
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INVENTORY VALUATION
FIFO
First-In, First-Out
Selling oldest units of inventory first
FIFO should definitely be used when accounting for perishable items, for example, food items.
This is the most logical method for most companies.

Under FIFO method, COGS (Cost of Good Sold) will be calculated using the oldest inventory purchas-
ing costs first. Due to inflation, these inventory costs are lower than for recently purchased inventory
units. Due to these lower costs, you will see higher net income in the balance sheet.
LIFO
Last-In, Last-Out
Selling last units that arrive in inventory first
Under the LIFO method, opposite from FIFO, you will see a lower net income. As the most recently
purchased items are usually the most expensive ones (due to inflation), the inventory costs will be
higher.
However, the decrease in profits also means a smaller corporate tax expense.
LIFO is usually used when inflation is high and by companies that have large inventories (e.g., retailers).
Example
Purchases
Month Units Price/Unit Total Cost
January 50 $50 $2,500
February 80 $60 $4,800
March 100 $70 $7,000
Total 230 $14,300
130 Units Sold
230-130=100 Units Le�
FIFO LIFO
FIFO COGS LIFO COGS
Units @ Price Total Cost Units @ Price Total Cost
1 50 @ 50$ $2,500 1 100 @ 70$ $7,000
2 80 @ 60$ $4,800 2 30 @ 60$ $1,800
Total 130 $7,300 Total 130 $8,800
FIFO Ending Inventory LIFO Ending Inventory

Units @ Price Total Cost Units @ Price Total Cost
1 100 @ 70$ $7,000 1 50 @ 50$ $2,500
Total 100 $7,000 2 50 @ 60$ $ 3,000
FINANCIAL MODELING Total 100 $5,500
WORLD CUP
β
What is
BETA?
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What is β ? FINANCIAL MODELING
WORLD CUP
Beta is a risk management tool, widely used in financial modeling. It demonstrates the volatility
(riskiness) of an asset or a portfolio in correlation to the market. In reality, most professionals use
some bechmark index, for example, S&P 500.
Formula
The “textbook” formula for beta is:
Covariance Measures a security’s return relative to the market’s.

β=
Variance Indicates how the market moves in relation to its mean.
Interpretation
It is assumed that the market has a beta of 1. If beta of a security is >1, the security is more volatile
(more risky) than the market, however, in case it is <1, the stock is less volatile (less risky).
Betas are useful for calculating yields and returns for securities.
Beta in Excel
Here are the steps to calculate Beta in Excel:
1) Retrieve the historical price of a security and the benchmark index in 2 separate columns. You
can either export it from online sources or use the =STOCKHISTORY function.
2) Calculate the price change for the security in percentage with the use of this formula:
Current price - Price for previous date

Δ= x 100
Price for previous date
3) Calculate Beta using the SLOPE function. It works the following way: SLOPE (known_ys;
known_xs). Known_ys stand for % of equity change range, and known_xs mean % range of change
of index. The returned value is the beta.
Example
Assuming there is a security with a daily change in price calculated
in cells L7:L52 and the daily change of an index calculated
in cells Q7:Q52, the formula in Excel should look like
=SLOPE (L7:L52; Q7:Q52). The returned value is the beta.
In this case, the result is 0.36, implying that this particular
stock is less volatile than the market.
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$
Options
Pricing
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OPTIONS
OPTIONS PRICING
PRICING
WHAT ARE OPTIONS?
Options are derivative financial instruments dependent on the value of underlying

securities, for example, stocks. The owner of the option has the right but not the obligation
to use the option.
CALL VS. PUT
- A call option is a contract giving its owner the right to buy shares of a stock at a fixed price.
- A put option is a contract giving its owner the right to sell shares of a stock at a fixed price.
AMERICAN VS. EUROPEAN OPTIONS
- If the option can be exercised any time before the maturity date it is called an American
option.
- If it is only possible to exercise it at the date of expiration, it is termed a European option.
PAYOFF VS. PROFIT
Option payoff implies the gross value of an option at the maturity date, excluding the initial
transfer of the premium.
Option profit means showing the net gain or loss of a position in options by also accounting for
the costs and gains of establishing the position.
USEFUL TERMS AND ABBREVIATIONS IN OPTIONS PRICING
S = The current price of the underlying stock

C = The current value of the associated call
P = The current value of the associated put
K = The exercise price of the option (aka E or X) - the price at which the underlying security can
be bought or sold when trading options.
rf = The risk-free interest rate
T = time to maturity
σ = Standard deviation of the price of the underlying stock (not used in this stage case for
simplicity)
Prepared by JP Delavin and FMWC team Sponsored by:

PAYOFF DIAGRAMS
payoff LONG CALL payoff LONG PUT
K S K S
buying a right to buy buying a right to sell
SHORT CALL SHORT PUT

payoff payoff
K K
S S
selling a right to buy selling a right to sell
USEFUL FORMULAS IN OPTIONS PRICING: r = annual (nominal) interest rate e = mathematical constant ~ 2.71828
growth rate 1 - rf
u = e d = Annual Discount Factor = e
u
r Option value = (payoff from upstep * probability of

e f- d
Pu= Pd = 1-Pu upstep + payoff from downstep * probability of
u-d
downstep) * annual discount factor
u = upstep d= downstep rf= annual risk-free interest rate
Pu = probability of upstep Pd = probability of downstep

EXAMPLE - EUROPEAN CALL OPTION
Calculations
Assumptions growth rate 18%
Annual up factor (u) = e =e = 1.20x
Stock Price today = 650$
Annual down factor (d) = 1/u = 1/1.20 = 0.84x
Annual risk-free rate = 3% - rf - 3%
Continuously compounded annualized up Annual discount factor = e = e = 0.97
and down return = 18% Up probability = (e r - d) / (u-d) = (e 3% - 1.20) /
f
Annual risk-free rate = 3% (1.20 - 0.84) = 53.93%

Strike Price = 600 $ Down probability = 1- up probability = 46.07%
t=0 t=1 t=2
S2 = S 1* u
S2= 778.19 * 1.20 = 931.66
S 1= S 0 * u
Payoff based on
S1= 650 * 1.20 = 778.19
S T ++
Expected value of
two values from t=2
S0= 650 S - K = 931.66 - 600 = 331.6
discounted by one
Expected value of period
S2= 778.19 * 0.84 = 650
two values from t=1 ( * Pu + * P d ) * discount factor
discounted by one (331.6* 53.93% + 50 * 46.07%) * 0.97 =
195.92
Payoff based on
period
S 1= S 0 * d
S T +-
Call value = S1= 650 * 0.84 = 542.93
( *P + * P ) * discount factor
u d Expected value of
(195.92 * 53.93% + 26.17 * 46.07%) * 0.97 =
S - K = 650 - 600 = 50
114.23
two values from t=2
discounted by one
period S2= 542.93 * 0.84 = 453.49
( *P +
u
* P ) * discount factor
d
(50 * 53.93% + 0 * 46.07%) * 0.97 =
26.17
Payoff based on
1. Calculate the binomial tree for the underlying stock’s S T --
share price from today (t = 0) until expiration (t = T) using -
the up factor U and the down factor D.
S - K = 453.49 - 600 = - ... -> -
NB! Given the nature of the assumptions (i.e., D=¹⁄U), you
(<0)
should only have T+1 (not 2^T) possible stock prices at
time t=T.
2. At t=T, compute all the possible payoffs of the option
for all potential share prices at expiration based on the NB! These risk-neutral up and down probabilities are NOT the
strike price and the nature of the option (i.e., call, put, market consensus probabilities that the stock will go up or
etc.). down.
3. Calculate the expected option payoff at t=T using the
f
risk-neutral up and down probabilities. Then, discount 4. Repeat step 3 for times t=T-2,T-3,… until you find the value
f
these expected payoffs using the risk-free rate (r_f) to find of the option at t=0. This should be the fair price of the option
the option value at t=T-1 (i.e., one period prior to according to the binomial tree model.
expiration). This value is called the continuation value of
the option at time t=T-1.

EXAMPLE - AMERICAN PUT OPTION (same assumptions)
t=0 t=1 t=2
S2 = S 1* u
S = 778.19 * 1.20 = 931.66
2
S 1= S 0 * u
Payoff based on
S1= 650 * 1.20 = 778.19
S T ++
The expected value is the
highest of the two: discounted
S0= 650 future payoffs from t=2 or if K - S = 600 - 931.66 = - ... -> -
(<0)
you were to exercise the
The expected value is the option right now. S2= 778.19 * 0.84 = 650
highest of the two:
( * Pu + * P ) * discount factor
discounted future payoffs d
(0 * 53.93% + 0 * 46.07%) * 0.97 =
from t=1 or if you were to 0 Payoff based on
exercise the option right now. -
S 1= S 0 * d S T +-
Call value = S1= 650 * 0.84 = 542.93
( *P + * P ) * discount factor
u d The expected value is the K - S = 600 - 650= - ... -> -
(0 * 53.93% + 65.51* 46.07%) * 0.97 = highest of the two: discounted (<0)
29.29
future payoffs from t=2 or if S2= 542.93 * 0.84 = 453.49
Compare with K-S (600-650=-50) -> you were to exercise the
29.29>-50
option right now.
Payoff based on
( * Pu + * P d ) * discount factor
(0 * 53.93% + 146.51 * 46.07%) * 0.97 = S T --
65.51
Compare with K-S (600-542.93=57.07) ->
65.51>57.07
K - S = 600 - 453.49 = 146.51
1. Calculate the binomial tree for the underlying

stock’s share price from today (t = 0) until
expiration (t = T) using the up factor U and the NB! These risk-neutral up and down probabilities are
down factor D. NOT the market consensus probabilities that the
NB! Given the nature of the assumptions (i.e., stock will go up or down.
D=¹⁄U), you should only have T+1 (not 2^T) possible 4. For American options, as they can be exercised at
stock prices at time t=T. any time, first calculate the expected value at t=T by
2. At t=T, compute all the possible payoffs of the discounting future payoffs (step 3) and compare this
option for all potential share prices at expiration value with stock minus exercise price (as if you were
based on the strike price and the nature of the to exercise the option at this time). Continue further
option (i.e., call, put, etc.). calculations with the highest number from these
3. Calculate the expected option payoff at t=T two.
using the risk-neutral up and down probabilities. 5. Repeat step 3 and 4 for times t=T-2, T-3,… until
Then, discount these expected payoffs using the you find the value of the option at t=0. This should be
risk-free rate (r_f) to find the option value at t=T-1 the fair price of the option according to the binomial
(i.e., one period prior to expiration). This value is tree model.
called the continuation value of the option at time
t=T-1.

Top Finance
KPIs
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CASH KPIS YOU SHOULD KNOW
Name Description Formula
Profit before Tax – Tax Paid +

Cash Flow from Operations Measures the net cash generated or used Non-cash Expenses (e.g. depre-
in the business's regular operations.
(CFO) ciation) - Changes in Working
Capital
Shows the proportion of current assets

to current liabilities and indicates the Current Assets / Current
Current Ratio company's ability to pay off short-term Liabilities
obligations.
Quick Ratio Similar to the current ratio but excludes (Current Assets - Inventory) /
inventory, providing a more immediate
(Acid-Test Ratio) measure of liquidity.
Current Liabilities
Measures the average number of days it (Average Inventory / Cost of

Days Inventory Outstanding takes for a company to sell its entire Goods Sold) * Number of
(DIO) inventory. Days in the Period
Measures the average number of days (Accounts Receivable /

Days Sales Outstanding it takes for the company to collect Total Credit Sales) *
(DSO) payments from customers. Number of Days in Period
Measures the average number of days (Accounts Payable / Total

Days Payable Outstanding it takes for the company to pay its Credit Purchases) * Number of
(DPO) suppliers. Days in Period
Cash Conversion Cycle Calculates the time it takes for a com-

pany to convert its investment in in- DIO + DSO – DPO
(CCC) ventory into cash from sales.
Indicates how quickly the company is (Beginning Cash Balance -

Cash Burn Rate using up its cash reserves over a specific Ending Cash Balance) /
period. Number of Months
Current Cash Balance/ Cash

Cash Runway Measures the number of months until the
Burn Rate
cash runs out.
Represents the cash available to the

company after all expenses, investments, Cash Flow from Operations -
Free Cash Flow (FCF) and other cash flows have been Capital Expenditures
accounted for.

INVESTORS KPIS YOU SHOULD KNOW
EPS = (Net Income - Pre-

Earnings Per Share Shows the amount of profit generated
ferred Dividends) /Average
(EPS) for each outstanding share of stock.
Outstanding Shares
Indicates how much investors are

Price-to-Earnings Ratio P/E Ratio = Stock Price/
willing to pay for each dollar of
(P/E Ratio) earnings.
Earnings Per Share
Measures the profitability generated Net Income / Average

Return on Equity (ROE) from shareholders' equity. shareholders' Equity
Evaluates the proportion of debt Debt-to-Equity Ratio = Total

Debt-to-Equity Ratio financing compared to equity financing. Debt / Shareholders' Equity
Assesses the percentage of sales

Gross Margin = (Gross
Gross Margin revenue remaining after deducting
Profit / Revenue) * 100
the cost of goods sold.
Shows the profitability of core Operating Margin = (Operat-

Operating Margin business operations before interest ing Income / Revenue) * 100
and taxes.
Measures a company's short-term Current Ratio = Current

Current Ratio liquidity and ability to meet immedi- Assets / Current Liabilities
ate obligations.
Assesses a company's ability to cover

short-term obligations with its most Quick Ratio = (Cash +
Quick Ratio liquid assets (such as cash, cash Accounts Receivables +
(Acid-Test Ratio) equivalents, account receivables and Marketable Securities) /
marketable securities). Current Liabilities
Return on Investment Evaluates the return earned from an (Net Profit from Investment/
investment relative to its cost. Cost of Investment) * 100
(ROI)
Dividend Yield = (Annual

Measures the annual dividend income
Dividend Yield relative to the stock price.
Dividend Per Share / Stock
Price) * 100

INVENTORY KPIS YOU SHOULD KNOW
Inventory Turnover Measures how many times inventory Cost of Goods Sold (COGS)
is sold and replaced within a specific / Average Inventory
Ratio period.
Days Inventory Indicates the average number of days 365 days / Inventory
Outstanding (DIO) it takes for inventory to be sold. Turnover Ratio
Represents the expenses associated

with storing and maintaining inventory. (Inventory Holding Cost /
Inventory Carrying Cost Total Inventory Value) x 100
Includes costs like storage, insurance,
depreciation, and opportunity cost.
Measures the frequency of running out (Number of Stockouts /

Stockout Rate of stock on a specific item. Total Demand) x 100
Measures the percentage of customer (Total Orders Fulfilled /

Fill Rate orders that can be fulfilled immediately
Total Orders) x 100
from available inventory.
Measures the time it takes to receive Order Placed Date – Order

Lead Time inventory after placing an order. Received Date
Measures the accuracy of recorded

Inventory Accuracy (Total Actual Inventory / Total
inventory levels compared to actual
Recorded Inventory) x 100
physical inventory.
Measures the ratio of current inventory

Current Inventory / Average
Stock-to-Sales Ratio levels to average daily sales. Helps
Daily Sales
predict if excess inventory is being held.
Obsolete Inventory Measures the percentage of inventory (Value of Obsolete Inventory /

Ratio that is no longer saleable or usable. Total Inventory Value) x 100
Gross Margin Return Measures the profitability of inventory (Gross Margin / Average
on Inventory Investment investments relative to their cost. Inventory) x 100

ACCOUNTING KPIS YOU SHOULD KNOW
Measures the percentage increase or decrease in

((Current Period Revenue - Previous Period
Revenue Growth Rate revenue over a specific period, indicating the
Revenue) / Previous Period Revenue) * 100
company's ability to generate more sales.
Calculates the percentage of revenue remaining after (Revenue - Cost of Goods Sold) / Revenue *
deducting the cost of goods sold, indicating the
Gross Profit Margin efficiency of the company's production or service delivery.
100
Measures the percentage of revenue that remains as

net profit after deducting all expenses, providing in- Net Income / Revenue * 100
Net Profit Margin sights into the overall profitability of the company.
Evaluates the efficiency and profitability of an invest-

Return on Investment (ROI) ment by measuring the return generated compared to (Net Profit / Initial Investment) * 100
the initial investment.
Determines the profitability of a company's assets by

Return on Assets (ROA) measuring the net income generated per unit of total Net Income / Total Assets * 100
assets.
Measures the profitability of shareholders' investments

Return on Equity (ROE) by assessing the net income generated per unit of Net Income / Shareholders' Equity * 100
shareholders' equity.
Calculates the number of times accounts receivable are

Accounts Receivable Turnover Net Credit Sales / Average Accounts
collected or turned over within a specific period, indicating
Receivable
the effectiveness of credit and collection policies.
Measures the average number of days it takes to collect

(Average Accounts Receivable / Net
Days Sales Outstanding (DSO) payments from customers, providing insights into the
Credit Sales) * Number of Days
efficiency of the company's credit management.
Determines how quickly a company pays its suppliers

Total Supplier Purchases / Average
by calculating the number of times accounts payable
Accounts Payable Turnover are paid or turned over within a specific period.
Accounts Payable
Measures the number of times inventory is sold and

replaced within a specific period, indicating the Cost of Goods Sold / Average Inventory
Inventory Turnover efficiency of inventory management and sales.
Assesses the company's ability to cover short-term

liabilities with its short-term assets, indicating its Current Assets / Current Liabilities
Working Capital Ratio liquidity position.
Compares a company's total debt to its shareholders'

equity, providing insights into the company's leverage Total Debt / Shareholders' Equity
Debt-to-Equity Ratio and financial risk.
Measures the company's ability to pay its short-term

Current Ratio obligations with its current assets, indicating its
Current Assets / Current Liabilitie
short-term liquidity position.
Similar to the current ratio, but excludes inventory from

(Current Assets - Inventory) / Current
Quick Ratio current assets, providing a more conservative measure
Liabilities
of short-term liquidity
Days Sales Outstanding (DSO) + Days

Evaluates the time it takes for a company to convert its
Cash Conversion Cycle (CCC) Inventory Outstanding (DIO) - Days
investments in inventory and other resources into cash
Payable Outstanding (DPO)
flows from sales.
Note: DPO represents the average number of days it takes for a company to pay its accounts payable. It can be calculated as Average
Accounts Payable / (Total Supplier Purchases / Number of Days).
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GROWTH KPIs YOU SHOULD KNOW
Measures the increase in revenue over

((Current Revenue - Previous Revenue)
Revenue Growth a specific period, typically expressed / Previous Revenue) x 100
as a percentage.
Customer Acquisition Calculates how much it costs to Total Cost of Sales and Marketing /
acquire each new customer. Number of New Customers Acquired
Cost (CAC)
Assesses the total value a customer Average Purchase Value ×

Customer Lifetime Average Purchase Frequency × Average
brings to the company throughout their
Value (CLV) entire relationship.
Customer Lifespan
Monitors the rate at which customers (Number of Customers at the Start of

the Period - Number of Customers at
Churn Rate stop using or subscribing to your the End of the Period) / Number of
product or service. Customers at the Start of the Period
Monthly Recurring Tracks the predictable and recurring Average Revenue Per User x Number
of Customers
Revenue (MRR) revenue generated.
Measures customer satisfaction and

Net Promoter loyalty by asking how likely customers (% of Promoters) - (% of Detractors)
Score (NPS) are to recommend your product or
service to others.
Measures the level of satisfaction that

Customer Satisfaction customers have with your product, (Number of Satisfied Responses /
Score (CSAT) service, or overall experience, typically Total Responses ) x 100
measured through surveys.
Evaluates your company's portion of (Your Company's Sales / Total Market

Market Share the total market in terms of revenue. Sales) x 100
Determines the percentage of ((Number of Customers at the End of

Customer Retention customers who continue to use your the Period - Number of New Customers
Acquired) / Number of Customers at
Rate product or service over time. the Start of the Period) x 100
Calculates the percentage of revenue

remaining after deducting the cost of ((Revenue - Cost of Goods Sold) /
Gross Margin goods sold (COGS), which reflects your Revenue) x 100
profitability.

Top Finance
Certificates
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TOP FINANCE CERTIFICATIONS
ACRONYM FULL NAME DESCRIPTION ISSUED BY
Widely regarded as one of the most prestigious certifications

Chartered Financial
CFA Analyst
in finance, the CFA program covers investment management,
financial analysis, ethics, and more.
CFA Institute
While primarily associated with accounting, the CPA Various state boards
Certified Public
CPA Accountant
certification is highly valuable in finance due to its emphasis
on financial reporting, auditing, taxation, and business law.
of accountancy in
the United States
'
AFM/ Advanced Financial

This certificate signifies the highest level of expertise in
Modeler/ Chartered
CFM/ Financial Modeler/
financial modeling, reflecting exceptional skills, leadership,
and significant contributions to the field.
Financial Modeling
Institute
MFM Master Financial Modeler
Financial Risk Global Association

FRM
This certification focuses on risk management, including
Manager market risk, credit risk, operational risk, and risk modeling. of Risk Professionals
Certified Financial Geared towards financial planning and wealth management, Certified Financial
CFP Planner
the CFP certification covers areas like retirement planning,
estate planning, tax planning, and more.
Planner Board of
Standards
Concentrating on alternative investments such as hedge

Chartered Alternative Chartered Alternative
CAIA Investment Analyst
funds, private equity, and real assets, the CAIA certification
is well-suited for professionals involved in alternative
Investment Analyst
Association
investments.
Financial Modeling This certification covers financial modeling, valuation, Excel

Corporate
FMVA and Valuation Analyst
skills, and more, making it useful for professionals working
in financial analysis and modeling.
Finance Institute
This certification is tailored for management accounting, Institute of

Certified Management
CMA Accountant
covering topics like financial planning, analysis, control, and
decision support.
Management
Accountants
Investments &
Certified Investment Suitable for investment consultants and advisors, the
CIMA
Wealth Institute in
CIMA certification focuses on portfolio construction, risk
Management Analyst management, and investment strategies.
association with the
CFA Institute.
Geared towards insurance professionals, the CIP program

Chartered Insurance Insurance Institute
CIP Professional
covers various aspects of insurance including underwriting,
claims, risk management, and insurance law.
of Canada
Financial Planning
FPA Association
This program covers various aspects of financial planning
and is recognized by the Financial Planning Association.
Financial Planning
Association
Aimed at treasury and cash management professionals, the Association

Certified Treasury
CTP Professional
CTP certification focuses on cash flow management,
liquidity, risk management, and financial planning.
for Financial
Professionals
Association of
Chartered Certified
ACCA Accountant
Emphasizes financial management, audit and taxation Chartered Certified
Accountants

Finance Terms
Explained
To Kids
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10
FINANCE
TERMS
EXPLAINED TO KIDS
Financial Modeling
Financial Modeling is like

building a big lego castle!
You have lots of little pieces, like the money you make
and the money you spend, and you have to put them
all together in a special way to make a big picture.
It is like building a big picture of how much money a

company will make and spend in the future, using all
the little pieces of information they have today.
This big picture can help the company plan what to do

with their money and make sure they have enough for the
future. People use financial models to make smart deci-
sions about things like saving, spending, and investing.

Balance Sheet
Think of a balance
sheet as a picture
of your money.
It shows all the things

you own (like toys or
buildings) and all the
money you owe to
your parents for the
things you broke.
It’s like a scale that helps to balance your life and

make sure you have enough money for the things
you need. It helps us see if we have more money
coming in than going out.

Depreciation
Imagine you have a special toy that
you really like, but over time, it might
not work as well or be as popular
anymore.
That's kind of like what

happens with things
like cars or machines.
Depreciation is when
their value goes down
because they're getting
older or used.
A company takes that loss of value into account

when they are making a plan for their money.

EBITDA
Full name: Earnings
Before Interest, Tax,
Depreciation, and
Amortization
EBITDA sounds like a fancy robot's name, but it's

really a way to know how well a business is doing.
It's a way for grown-ups to check how much money a

company is making before thinking about paying
back loans, giving some money to the government,
or even fixing things.
It helps them see how much money they have to spend

on other things.

NPV
Full name: Net Present Value
NPV is like a treasure

map for grown-ups. It
helps them figure out
if something that
costs money now will
be worth more money
in the future.
If the treasure they find is more than what

they spent, then it's a good deal! It’s like
looking at all the money you will make and
spend over a longer period of time.

IRR
Full name: Internal Rate of Return
Imagine you're planting magic

seeds that grow into treasure trees.
Each seed you plant will give you
more and more treasure over time.
The IRR is like a special number that

helps you figure out how fast those
treasure trees are growing.
If the trees are growing really fast and giving you lots of
treasure, that's a great thing! It's like knowing how much
your magic seeds are worth when they turn into trea-
sure. Grown-ups use IRR to decide if a project or an in-
vestment is a good idea. If the IRR is high, it means the
project will make lots of treasure over time.
So, they can use IRR to choose the best ways to spend
their money and make sure it grows like magic!

WACC
Full name: Weighted Average
Cost of Capital
Imagine you're planning a big party

and you need to borrow some money
to make it extra fun. WACC is like
making sure you don't spend too much
money on the party that you won't
have enough left for other things.
Some money might be easy to borrow, like asking a friend.

Other money might be a bit harder to get, like asking your
parents, and they might want you to do some extra chores.
WACC helps companies know how much they should pay for all
the money they borrow and use to make their business better.
It's like finding a fair balance between the different kinds of

money they use, so they can keep growing and doing well.

LTV
Full name: Lifetime Value
Imagine you have a friendly pet dragon that you love
spending time with. LTV is a bit like measuring how much
joy your dragon brings you throughout its whole life. In
the grown-up world, companies have special customers
who keep coming back to buy things from them.
LTV helps companies understand how much those

special customers are worth over a long time. It's
like counting all the times they come back to buy
more things.
Companies use LTV to figure

out how much they should do
nice things for their customers,
like giving them special dis-
counts or making sure they're
really happy.

ROI
Full name: Return on Investment
Imagine you have a magical piggy

bank that you put your allowance
into. Over time, that piggy bank
grows bigger because of the
money you save.
ROI is like a special way to see how

much bigger your piggy bank got
compared to how much you put in.
Grown-ups use ROI to know if the money they spent

on something is making them more money.
It helps them choose the best ways to use their

money and make sure it grows.

ARR
Full name: Annual Recurring
Revenue
Imagine you have a lemonade stand that you set up in your
neighborhood. Every month, your friends and neighbors
come by to buy your delicious lemonade. But here's the
cool part: they don't just buy lemonade once – they keep
coming back for more every month!
Now, ARR is like using your math skills to figure out how
much money you can expect to get from them every year.
You add up all the money they'll pay you for lemonade,
and find out how much money keeps coming in regularly.
Grown-ups use ARR to know how much

steady money they'll have, which helps
them plan for things like buying more
lemons.

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from World Champions and Excel MVPs?
Well, get ready for an incredible adventure at The Active Cell training camp!
You'll dive into the awesome world of Excel and Financial Modeling – that's
like making super smart plans with numbers.
Learn the coolest Excel tricks and secrets, and even watch these
champions compete LIVE! Imagine being a part of all the fun and ex-
citement too! Plus, you'll discover how to think about big projects
and businesses to predict the future and even get certified by the in-
credible Excel MVPs Oz du Soleil and Jon Acampora.
And guess what? You can join the FMWC award ceremony in Las Vegas
It's like going to a super cool party where they celebrate amazing
achievements! So, are you ready to be an Excel superhero? The Active
Cell is waiting for you!

Excel
Shortcuts
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USEFUL EXCEL SHORTCUTS
GENERAL NAVIGATION
Create embedded chart Alt F1 Move one screen right Alt PgDn
Create chart in new worksheet F11 Move one screen left Alt PgUp
Find previous match Ctrl Shift F4 Move one screen up PgUp
Find next match Shift F4 Move one screen down PgDn
Display the Paste Special dialog box Ctrl Alt V

Move to right edge of data region Ctrl
Repeat last action F4 Move to left edge of data region Ctrl
Close current workbook Ctrl W Move to beginning of row Home
Close Excel Alt F4 Move to last cell in worksheet Ctrl End
Create new workbook Ctrl N Move to first cell in worksheet Ctrl Home
Open workbook Ctrl O
FORMATTING WORKBOOK
Align center Alt H A C Insert new worksheet Shift F11
Align left Alt H A L Go to next worksheet Ctrl PgDn
Align right Alt H A R Go to previous worksheet Ctrl PgUp
Increase font size one step Alt H F G Move to next pane F6
Decrease font size one step Alt H F K Move to previous pane Shift F6
Currency Format Ctrl Shift $ Go to next workbook Ctrl Tab
Percentage Format Ctrl Shift % Go to previous workbook Ctrl Shift Tab
Scientific Number Format Ctrl Shift ^ Minimize current workbook window Ctrl F9
Date Format Ctrl Shift # Maximize current workbook window Ctrl F10
Time Format Ctrl Shift @
Number Format Ctrl Shift !
Remove borders Ctrl Shift _
Enter Current Date Ctrl ;

info@fmwordcup.com
Enter Current Time Ctrl :
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17 Financial
Modeling
Tips & Trciks
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17 FINANCIAL MODELING
TIPS & TRICKS
General rules
1 Keep your financial model simple
Simplicity reduces the chances of errors. People

prefer simple things over complex ones.
2 Think of the users
Consider the users' Excel experience when building

the model. Protect formulas to prevent mistakes.
Be prepared to learn from their usage patterns.
3 "Rule of thumb" in financial modeling
Keep formulas concise, not longer than a thumb's

length. Split long formulas into helper cells.
4 Use consistent project names or codes throughout

the model
Name them once on the Assumption sheet and link

them to other sheets. Avoid the hassle of renaming
projects on every sheet.
01

TIPS & TRICKS
General rules
5 Adding rows or columns can introduce errors
Be cautious with VLOOKUP/HLOOKUP functions with

fixed parameters. Adding rows might exclude a row from
a SUM function range.
6 Use placeholders
Instead of adding rows throughout the model for new

projects or cost items, include placeholders (extra rows/-
columns) for future additions. This saves time.
7 Hide these extra rows/columns using the Hide

function
Or, even better, the Group/Ungroup function to improve

the model's appearance.
8 Use separate sheets for inputs, calculations, and

outputs
However, some financial modelers argue that placing

inputs within calculation sheets is more convenient and
transparent.
02

TIPS & TRICKS
Working with several files
9 Keep calculations within one file
Linking files together is a source of error and inconvenience,

especially if you have various users with different level of
experience working on the file.
10 Avoid large file sizes in financial models
Models over 40 Mb may work slowly, while those over 200

Mb are nearly unusable. Extremely large models should be
avoided.
11 Manual recalculation of formulas can save time if a file is

slow
Use the "Formulas - Calculation options" to manually recalcu-

late instead of relying on automatic recalculation with every
Enter key press.
12 When multiple data providers are involved, store all data

in one folder and password-protect files they shouldn't
access
Alternatively, appoint a key person to consolidate reports

from others into the folder.
13 Open all files feeding the model to ensure updated links

and formulas are used
This practice helps maintain accuracy and consistency in
the model. 03

TIPS & TRICKS
Other financial modeling tips and tricks
14 Use super-large numbers to test input impact and

model validity.
Input a billion instead of thousands to quickly identify

affected cells in the model.
15 Excel stores dates as numbers
E.g., Aug 22, 2018 as 43334 (based on days since Jan 1,

1900). Enter dates using regional settings to avoid
errors. Data Validation can help control user inputs.
16 Use negative numbers
If you construct e.g. a Cash flow statement, show cash

outflows as negative numbers for convenience. Sum
the range without adjusting signs for each line in the
formula. This is particularly relevant in European
countries accustomed to positive numbers.
17 Follow our LinkedIn page
We post quite a lot of educational content here, so

give us a follow for more finance tips and tricks!🙂
04

Top 5 Excel
Features
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Financial Modeling in Excel FINANCIAL MODELING
WORLD CUP
5 Excel features you should know
Data Table
A great tool for your what-if analysis. A range of cells in which you can
change values in some of the cells and come up with different answers
to a problem.
How to create it?

Instructions Example
1. Write down input data Interest rate, number of periods and starting
amount if you want to see how your savings
amount would differ under different scenarios
2. Calculate the value you Savings amount from the initial input data
want to find out
3. Write down additional Changes in interest rate, starting amount

input data you want to test
4. Go to Data -> What-If

Analysis -> Data Table
5. Put in row and column Row input cell - interest rate from initial input
input cell that corressponds data;
to the layout you have Column input cell - starting amount from initial
created in step #3 and input data
press OK
By changing the
initial input data,
your data table
will update too!
WORLD CUP
Pivot Table
A PivotTable is a powerful tool to calculate, summarize, and analyze data
that lets you see comparisons, patterns, and trends in your data.
How to create it?

1. Have an Excel table with Store order history with customed ID, product ID,
data product price and product category
2. Go to Insert -> PivotTable Choose the table from step 1

and choose a table or a
range you want to analyze
3. Choose fields to Look at the total sales and count of products

bought by product categories. Choose columns,
summarize the data by
Rows, Filters, Values – everything is customizable
and you can play with the report!
4. Go to PivotTable Analyze Add a slicer, insert timeline, add subtotals and

or Design tabs to other things
customize the Pivot Table
WORLD CUP
Data Validation
Use data validation to restrict the type of data or the values that users
enter into a cell. One of the most common data validation uses is to
create a drop-down list.
How to create it?

1. Select the cell you want On your input data Excel sheet, create a cell
to create a drop-down list in where users will be able to choose between
different store locations
2. Select Data -> Data

Validation
3. Choose what will the users Offer to choose from a list of store locations such
be able to choose (numbers, as “USA, Spain, UK, Australia, Japan, Germany”
dates, time, custom text, etc.)
4. Create Input Message so “Select Store Location”

that users know what they
are choosing
5. Link other data in your Link profit and loss statements to geographical
model to this dropdown list, location of the stores from the dropdown by using
so that values update “IF” statements
automatically
WORLD CUP
Power Query
Power Query (known as Get & Transform in Excel) is a great tool for minimizing
repetitive daily tasks. You can import or connect to external data and then shape this
data. For example, remove a column, change a data type, or merge tables in ways
that meet your needs. Then, you can load your query into Excel to create charts and
reports.
How to create it?

1. Connect to Data Pull in data from a different Excel file that
Go to Data -> Get Data contains participant names and stage points
2. Transform Data Clean Data - remove unneeded columns, assign

Do all kinds of changes to data types, rename columns for better
your data while the original understanding, etc.
dataset stays the same
3. Combine Data Pull in another data source on the background of

Add other datasets and the participants - country, company, age group,
make connections between etc. Append Queries.
them to get more insights
4. Load Data Load the appended query into the Excel file. After
Load the transformed and each stage, add information on the points and
combined data to your refresh dataset.
worksheet and enjoy the
clean dataset
Conditional
Formatting
Guide
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x
Typical Excel
Mistakes
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How ChatGPT
Can Simplify
Excel Workflow?
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HOW CHATGPT CAN SIMPLIFY
OUR EXCEL WORKFLOW
Let’s analyze how ChatGPT can create an Excel macro
In a recent video, Excel MVP Kevin Stratvert uses ChatGPT to create an Excel
macro that functions as an invoicing app, using customer email addresses and the
amount they owe (with all the data found on an Excel sheet). Not only does ChatGPT
create an Excel macro, it also gives a detailed explanation for how this macro works.
OUR EXCEL WORKFLOW
Simplify nested IF formulas with ChatGPT
You can also simplify work with nested IF formulas by using

ChatGPT with Excel. Simply by typing in the description of
the problem, ChatGPT will break it down into steps
and provide the Excel formula necessary.
OUR EXCEL WORKFLOW
Can ChatGPT write Excel Power Query codes?
Yes, it can. All you need to do is type in a command, for example: “Write an Excel
Power Query M code to append sheet1 from workbook1 and sheet2 from workbook2
and remove duplicates from column B and ChatGPT will come back with an example
of a Power Query M code that can be used. Also, ChatGPT gives a detailed
explanation about the Power Query M code. Then, just copy and paste
the code and you’re good to go.
OUR EXCEL WORKFLOW
Analyzing .csv with ChatGPT
Let’s say you need to find some very specific information that’s located
in an Excel sheet. This is another case when using ChatGPT could save you
some time. Export your Excel sheet as a CSV file. Copy and paste some
of the data into ChatGPT (unfortunately it’s not possible to copy and paste the
whole thing as there’s still some content limitations to what ChatGPT can digest).
ChatGPT will explain the data and now you can start asking questions to
help locate specific information that you need. ChatGPT can successfully
locate and show you the information you are looking for, possibly saving you
time and a headache doing the same with Excel.
Even though ChatGPT is super powerful and useful – the data or solutions
it provides can sometimes be inaccurate. We advise you to always
double-check and see if the answers provided are correct
(and don’t rely on ChatGPT for everything just yet!

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Financial

3. Top 10 Excel Functions

7. Top Finance KPIs

8. Top Finance Certificates

9. Finance Terms Explained to Kids

10. Excel Shortcuts

11. 17 Financial Modeling Tips & Tricks

12. Top 5 Excel Features

13. Conditional Formatting Guide

14. Typical Excel Mistakes

15. How ChatGPT Can Simplify Excel Workflow?

Follow Financial Modeling World Cup on LinkedIn

FINANCIAL RATIOS largest finance challenge

Quick Ratio (Acid Test)

Absolute Liquidity Ratio

Do not include such items in your calculations:

EBITDA Margin or Operating Margin

CAPITAL STRUCTURE RATIOS

EBITDA = earnings before interest, taxes, depreciation and amortization

EBITDA = net profit + CIT + % payments + depreciation + amortization

Working Capital Share of working

Retained Earnings Proportion of retained

Market Value of Equity

Sales Asset turnover ratio

=XIRR(cash flow values, dates of cash flows)

=XNPV(discount rate, cash flow values, dates of cash flow)

=PMT(interest rate, number of periods, present value)

=PMT() =PPMT() =IPMT()

=XLOOKUP(what do you want to look up, where can it be found,

=INDEX() & MATCH()

=EDATE() will aid in

=SEQUENCE (number of rows you want to generate, number of

This is the most logical method for most companies.

FIFO Ending Inventory LIFO Ending Inventory

Covariance Measures a security’s return relative to the market’s.

Current price - Price for previous date

WHAT ARE OPTIONS?

Options are derivative financial instruments dependent on the value of underlying

CALL VS. PUT

AMERICAN VS. EUROPEAN OPTIONS

- If it is only possible to exercise it at the date of expiration, it is termed a European option.

PAYOFF VS. PROFIT

USEFUL TERMS AND ABBREVIATIONS IN OPTIONS PRICING

S = The current price of the underlying stock

Prepared by JP Delavin and FMWC team Sponsored by:

payoff LONG CALL payoff LONG PUT

buying a right to buy buying a right to sell

SHORT CALL SHORT PUT

selling a right to buy selling a right to sell

r Option value = (payoff from upstep * probability of

Prepared by JP Delavin and FMWC team Sponsored by:

Annual risk-free rate = 3% (1.20 - 0.84) = 53.93%

t=0 t=1 t=2

Prepared by JP Delavin and FMWC team Sponsored by:

t=0 t=1 t=2

1. Calculate the binomial tree for the underlying

Prepared by JP Delavin and FMWC team Sponsored by:

Profit before Tax – Tax Paid +

Shows the proportion of current assets

Measures the average number of days it (Average Inventory / Cost of

Measures the average number of days (Accounts Receivable /

Measures the average number of days (Accounts Payable / Total

Cash Conversion Cycle Calculates the time it takes for a com-