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Financial Modeling in Excel

2011

Agenda
Introduction and Context Efficiently using excel preparation for modeling Excel Summarization Using Pivot Tables

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Key Authorization

CFA Institute (2010-11) Authorized Training provider CFA Pristine is now the authorized training provider for CFA Exam trainings . Pristine is largest training provider for CFA in India with presence across seven major cities.

GARP (2007-11) Authorized Training provider -FRM Largest player in India in the area of risk management training. Trained 1000+ students in risk management

FPSB India (2010-11) Authorized Training provider -CFP An authorized Education Provider for Chartered Financial Planner Charter.

PRMIA (2009-11) Authorized Training provider PRM/ APRM Sole authorized training for PRM Training in India. Largest player in India in the area of risk management training. Trained 1000+ students in risk management

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Key Associations*

Ernst & Young (2010) Real Estate Modeling Senior Associates were trained on building valuation models for real estate

Bank Of America Continuum Solutions (2010) Finance for Finance Associates were trained on valuation and mergers and acquisitions

J. P. Morgan (2010) Financial Modeling in Excel The Real Assets Group were trained in Excel for infrastructure and realestate modeling

Mizuho (2010) Financial Modeling in Excel Bankers were using excel models that they could not understand. Conducted financial modeling in Excel trainings to bridge the gap

ING Vyasa (2010) Infrastructure & Project Finance Bankers were trained on making integrated models for project finance and infrastructure.

Franklin Templeton CFA (2010) Students were facing a gap in the overall understanding of finance topics like corporate finance, FSA and valuation. Provided training for over 100 hours to bridge the gap

Credit-Suisse India (2009) Risk Management and Quant. Analysis IT Professionals of CreditSuisse India were trained on risk management.

HSBC (2008) Risk Management and Quant. Analysis New joinees in HSBC had a gap in knowledge of Risk Management and quantitative skills. Conducted trainings (On campus) to bridge the gap *Indicative List

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Key Associations

NUS Business School (2011) Financial Modeling in Excel Second year MBA students were given a full 2-day workshop on creating financial models. They learnt how to create integrated models of valuation.

IIM Calcutta (2010-11)

Financial Modeling in Excel Students about to go for internships and join jobs found a gap in their grasp of knowledge of excel for financial modeling. Conducted training for 75+ students with an average rating of 4.5+

FMS Delhi (2010-11)

Financial Modeling in Excel Final Year MBA students of Faculty of Management Studies, Delhi University were trained in financial modeling so as to prepare them better for a job in finance.

NISM (2008-11) Derivatives in Hedging (2008) Financial Modeling (2011) Corporate in Ludhiana incurred huge losses because of derivative trades (for hedging). Conducted trainings for directors and CFOs for better understanding of derivative products

IIT Delhi (2009) Corporate finance Students get placed in finance companies (UBS, GS, MS, etc) with no understanding of the subject/ Job Profile. Conducted workshop to bridge the gap

BITS Pilani (2009) Workshops on Basics of Finance Most of the students desire a career in finance. Conducted training for 350+ students with an average rating of 4.5+

IEMR Delhi (2010-11)

Financial Modeling in Excel Final Year MBA students of IEMR went through extensive financial modeling workshop to acquire skills of financial modeling.

SIMSREE (2010)
Final Year MBA students of Sydenham MBA, Mumbai were trained in financial modeling so as to prepare them better for a job in finance.

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Excel as the most important tool for modeling

Excel is one of the most widely used tools in financial industry
Easy to use High reach & access to software across geographies Flexibility Robustness Inbuilt features (Most people would not even be using 95% of the features) & Extendibility Modular and Object Oriented Architecture

Excel as a data-store
Easy to store and retrieve information Flexibility to put many data-types in the same sheet

Functions and a range of features

Excel is easily extendible to be used as a Modeling tool

Modeling Context
Understand the industry models being used Create your own models Rather than just using them Improve & enhance productivity in work Extend these models for your use Debug Problems

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Agenda
Introduction and context Efficiently using excel preparation for modeling Excel Summarization Using Pivot Tables

Neev Knowledge Management Pristine

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Key aspects of Modeling & Excel Usage

Building a ROBUST model is a must for other people to use your model
It should generate the correct results It should have proper area for Inputs/ Outputs It should be able to handle errors properly Naming/ Labeling of data items should be done properly Accidental changing of model parameters should be avoided The model should be easy to understand on computer and in printout Reusable components can be made in the excel sheet, which can be made later

SPEED is the key in modeling

A large model might have multiple excel sheets and a lot of formulas and calculations. It is necessary to navigate through the excel sheet in a speedy manner and understand it It is a fact that mouse is 5 times slower than using the keyboard to use excel. Due to heavy involvement of the users, having a strong command over the keyboard shortcuts is a must! A well designed excel sheet is easy to understand as well

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Lets take a moment to understand components of Excel

Toolbar Formula Bar Cells

Worksheet Name

Excel 2007 Interface

Excel 2003 and 2007 are being widely used in the industry. Most of features of 2007 are backward compatible

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 Lets take a moment to understand components of excel

Excel 2003 and 2007 are being widely used in the industry. Most of features of 2007 are backward compatible

Excel 2007 Interface

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CTRL + S CTRL + C CTRL + V CTRL + X CTRL + Z CTRL + A CTRL + B ALT + TAB ALT + F4 CTRL + TAB

Basic Editing and Saving Excel Save Workbook Copy Paste Cut Undo Select All Bold Switch Program Close Program Switch workbooks Some Special Shortcuts Paste Special Hide Row Unhide Row Hide Column Unhide Column Fit column width New worksheet Highlight row Highlight column Group rows/columns Ungroup rows/columns Delete selected cells Edit cells Navigating / Editing Move to new cells Switch worksheets Go to end of continuous range Select a cell Select range Select continuous range Move to beginning of line Move to cell A1 Move to cell above Move to cell to the right Move to cell to the left Display a drop-down list

CTRL + 1 ALT + H + 0 ALT + H + 9 SHIFT + CTRL + ~ SHIFT + CTRL + ! SHIFT + CTRL + # SHIFT + CTRL + $ SHIFT + CTRL + % CTRL + ; = (equals sign) ALT + = CTRL + CTRL + ~ F9 SHIFT + CTRL + Enter ALT + M + P ALT + M + D ALT + M + A + A CTRL + [ CTRL + ] F5 + Enter SHIFT + CTRL + { SHIFT + CTRL + }

CTRL + ALT + V CTRL + 9 SHIFT + CTRL + 9 CTRL + 0 SHIFT + CTRL + 0 ALT + H + O + I SHIFT + F11 SHIFT + Spacebar CTRL + Spacebar SHIFT + ALT + SHIFT + ALT CTRL + Minus sign F2

Formatting Format Box Increase decimal Decrease decimal General format Number format Date format Currency format Percentage format Enter the date Formulas Start a formula Insert AutoSum formula Copy formula from above cell Show formulas/values Recalculate all workbooks Enter array formula Auditing Formulas Trace immediate precedents Trace immediate dependents Remove tracing arrows Go to precedent cells Go to dependent cells Go back to original cell Trace all precedents (indirect) Trace all dependents (indirect) Inside the cell Editing Start new line in same cell Highlight within cells Highlight contiguous items Toggle $ Cancel a cell entry

Arrow keys CTRL + Pg Up/Down CTRL + Arrow keys SHIFT + Arrow keys SHIFT + CTRL + Arrow Home CTRL + Home SHIFT + ENTER TAB SHIFT + TAB ALT +

ALT + ENTER SHIFT + Arrow SHIFT + CTRL + Arrow F4 ESC

Change all Inputs to Blue: Press F5 then Select "Special" then "Constants", "OK then Manually change selection to blue font color Change all Formulas to Black: Select "Formulas" instead of "Constants then change selection to black color

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Moving across toolbars in Excel 2003 and 2007

Press Alt Key to activate Main toolbar For Example, Alt F for file

Use CTRL + TAB to Go to next toolbar

Use Arrow key to navigate further

In 2007, Pressing the ALT key automatically shows the options

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Cell Referencing - $
Use $ for Absolute Reference
A1 vs $A1 vs A$1 vs $A$1

What happens when you copy paste cells

Source $A$1 A$1 $A1 A1 $A$1 C$1 $A3 C3

Destination

Change the referencing of a cell by F2 + F4 Refer Worksheet A

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Simple Exercises in Excel

The financials of a start-up company are given to you. The company would be eligible for funding if their operating profit margin is greater than 35% and CAGR in revenue growth is greater than 50%. Create a model to check if the company is eligible for funding. Also visually indicate the eligibility.
Use worksheet B Hint
Use (P(t)/ P(t-k))^(1/k) -1 to calculate CAGR Use AND function to calculate eligibility Use IF function to print it Use conditional formatting to output the results

Email ids of 100 people are given to you. They all need to be migrated to a new domain of edupristine.com. Write a function to migrate all email ids to new domain
Use worksheet C Hint
Use FIND to find the common character Use LEFT function Use CONCATENATE function

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Arrays in Excel
Array (Can be loosely thought of as a list) is a group of cells or values that Excel treats as a unit
No longer treats the cells individually, but list of cells as an individual entity Since individual cells are not independent entities, so they cannot be changed individually Enables apply a formula to every cell in the range using just a single operation

For any matrix Operation

Calculate the exact size of the transposed Matrix
Select the appropriate range

Use the function Press SHIFT + CTRL + ENTER

Use Worksheet D
To Run Array Functions Remember to use CTRL + SHIFT + ENTER

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Frequently Used Array functions

Function Name SUMPRODUCT() TRANSPOSE() To Sumproduct 2 matrices To transpose a matrix Function

MATCH()
INDEX() VLOOKUP() COLUMN() ROW()

Match and Index are used in conjunction as a lookup function

Match and Index are used in conjunction as a lookup function To lookup for a particular value in array, with the starting column acting as a lookup reference Returns the column number of the cell referenced Returns the row number of the cell referenced

HLOOKUP()

To lookup for a particular value in array, with the top row acting as lookup reference

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Using the VLookUp Function

VLOOKUP() function The V in VLOOKUP() stands for vertical Works by looking in the first column of a table for the value you specify It then looks across the appropriate number of columns (which you specify) and returns whatever value it finds there The final option (range_lookup) is a Boolean value that determines how Excel finds the value. Always use
FALSE- for exact match Whenever looking for data picked from the net, trim the strings before comparison

Question (Use WorkSheet E) The ID of defaulters and their amount and phone number has been provided by the Credit Bureau in Columns A to D. Column F contains the IDs of your clients. Use Vlookup function to find out the default amount of your clients.

One of the most widely used functions in Excel

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Using the HLookup Function

HLOOKUP() function is
H in HLOOKUP() stands for horizontal Similar to VLOOKUP() It searches for the lookup value in the first row of a table

Question: Use Worksheet F Various expenses of Pristine are given in a table. Write a function to calculate the total expenses for any desired month (user should be able to change this value, and automatically the expenses should be updated)

Both Vlookup and Hlookup have a limitation of using the first Column/ Row as reference

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Index & Match Functions

INDEX() returns the reference or the value of a cell at the intersection of a row and column inside a reference

MATCH() function
looks through a row or column of cells for a value If it finds a match, it returns the relative position of the match in the row or column Use the usual wildcard characters within the lookup_value argument (provided that match_type is 0 and lookup_value is text) Use the question mark (?) for single characters and the asterisk (*) for multiple characters See Worksheet G

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Use Index and Match Any Column & row Lookup

Index and Match can be used in conjunction to perform complex lookup functions
Use Match to generate the row number that you are interested in Use Index to generate the value that you are looking for Similar to implementation of a new kind of directory service
Always Use FALSE in the boolean required for comparison

Use Worksheet H Various expenses of Pristine are given in a table. Write a function to calculate the desired expense head for any desired month (user should be able to change both the values, and automatically the expenses should be updated)

Easily Extendible approach to get any generalized kind of search (where both row and column can be variable)

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Agenda
Introduction and context Efficiently using excel preparation for modeling Excel Summarization Using Pivot Tables

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Pivot Tables An introduction

Easy Summarization & Analysis Tool

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Pivot Tables
Summarize data in one field
called a data field

and break it down according to the data in another field.

The unique values in the second field (called the row field) become the row headings

Further break down your data by specifying a third field

called the column field

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Terms used in Excel

Data source: The original data
Range, a table, imported data, or an external data source.

Field: A category of data, such as Region, Quarter, or Sales

Most PivotTables are derived from tables or databases, a PivotTable field is directly analogous to a table or database field

Row field: A field with a limited set of distinct text, numeric, or date values to use as row labels in the PivotTable Column field: A field with a limited set of distinct text, numeric, or date values to use as column labels for the PivotTable Report filter: A field with a limited set of distinct text, numeric, or date values that you use to filter the PivotTable view PivotTable items: The items from the source list used as row, column, and page labels

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Summarize Large Data

To start the pivot wizard:
ALT D + P To complete the process, press finish

Use Example I
Calculate Region Wise, Year wise sales Give Product wise Data for 2008 Only

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Summarize Large Data

To start the pivot wizard:

ALT D + P To complete the process, press finish

Use Example I
Calculate Region Wise, Year wise sales Give Product wise Data for 2008 Only

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Filtering for Particular Rows/ Columns

Use Example I
Calculate Region Wise, Year wise sales Give Product wise Data for 2008 Only Get Data only for Delhi

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Other Customization Options

Selecting the entire PivotTable: Choose Options, Select, Entire PivotTable Selecting PivotTable items: Select the entire PivotTable, then choose Options, Select. In the list, click the PivotTable element you want to select: Labels and Values, Values, or Labels Formatting the PivotTable: Choose the Design tab and then click a style in the PivotTable Styles gallery Sorting the PivotTable: Click any label in either the row field or the column field, choose the Options tab, and then click either Sort A to Z or Sort Z to A. (If the field contains dates, click Sort Oldest to Newest or Sort Newest to Oldest, instead.) Refreshing PivotTable data: Choose Options and then click the top half of the Refresh button Filtering the PivotTable: Click-and-drag a field to the Report Filter area, drop down the report filter list, and then click an item in the list

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Give the average sales in regions

Use Example I
Calculate Region Wise, Year wise sales Give Product wise Data for 2008 Only Get Data only for Delhi Instead of Total, give the average sales

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Changing the Pivot Table

Click any cell in the PivotTables data area Choose Formulas, Calculated Field
Excel displays the Insert Calculated Field dialog box Use the Name text box to enter a name for the calculated item Use the Formula text box to enter the formula you want to use for the calculated item

Use Example I
Calculate Region Wise, Year wise sales Give Product wise Data for 2008 Only Get Data only for Delhi Instead of Total, give the average sales Calculate the forecast for sales in 2009

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Errors in Functions
Error Meaning

# DIV/ 0!

Divide by Zero Error Generally seen when trying to divide by empty cell
Function name not found error Generally seen in misspelling of function Data Not available Quite often seen Vlookup cannot find data Invalid Cell reference Typically when a cell is referenced, which has been deleted Argument/ Operand of the wrong type Problem in value Typically when a +ve number is expected, and ve number is given as argument

# NAME?

# N/A

# REF!

# VALUE! # NUM!

Important to understand what kind of error can occur and handle it properly

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Use ISERROR() to Handle Errors

Excel 2003 has ISERROR() to determine, if there are any exceptions in the formulas
Handle exception and exit the error gracefully

Excel 2007 also has an IFERROR() function to handle errors Use Worksheet E to handle the errors and display Not Defaulted

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