INDEX

1. Financial Modelling
 Introduction
 Importance
 Components ( various statements)

2. Introduction to MS-Excel (with Screenshot)

3. Features of MS-Excel
4. Cell referencing
5. Data Formats(with Screenshot)
6. Order of operation and Parenthesis
7. Conditional Formatting – Introduction (With Screenshots)
 Types of conditional formatting
 How to apply Conditional Formatting ( With an example)
8. Macros – Introduction (With Screen shots)
 How to enable macros
 How to run macros
9. What If Analysis – Introduction
 Scenario manager – Introduction and example (With screenshots)
 Goal Seek - Introduction and example (With Screenshots)
 Data Table – Introduction and example (With Screenshots)
10. Pivot Table – Introduction
 Creation of Pivot Table (with an example question)
 Steps to create a pivot table (With screenshots)
11. Lookup Functions – Introduction
 Vlookup – purpose, syntax and example question (with screenshots)
 Hlookup - purpose, syntax and example question (with screenshots)
12. Index and Matching – Purpose, syntax and a question combined for
application of the formula (with screenshots)
13. Various Text Functions ( Left, Right, Find, Proper, Trim, Rept, Upper, Lower,
Concatenate) – Purpose, Syntax, application (with screenshots)
14. Count Function - Introduction, Syntax and Example ( with screenshots)
 Count
 CountA
 Count blank
 Count IF and Ifs
15. Statistical Function – Purpose, syntax and Example ( With screenshots)
 Average (Mean)
 Median
 Mode
 Standard deviation
16. Forecasting
 Income statement model (Example and screenshot)
 Balance Sheet Model (Example and screenshot)
17. IF, AND, OR functions (with examples and screenshots)
18. Trends and Forecast Function
 How to use and when to use
 Syntax
 Example and screenshot for both functions.
19. Time Value of Money
 What is time value of money and its significance
 Various terminologies used (FV, PV, i, n, t)
 What is future value (definitions and syntax)
 Calculation of FVboth single cashflow and annuity (example and
screenshot)
 What is present value (definitions and syntax)
 Calculation of PV (example and screenshot)
 FV Schedule (syntax, example and schedule)
20. Ratio Analysis
 What is ratio analysis and its significance
 Various ratios calculated with formulas
 Valuation ratio
 Profitability ratio
 Liquidity ratio
 Operating profit ratio
 Leverage ratio
 Coverage ratio
 Example and screenshot
21. Earnings per share
 What is EPS.
 Calculation of EPS (example and syntax)
22. EV/EBITDA
 Introduction
 Calculation of EV and EBITDA (example and screenshot)
 Calculation of EV/EBITDA ratio (screenshots and example)

23. EV/Sales ratio

 Introduction
 Calculation of EV/EBITDA ratio (screenshots and example)
24. Capital budgeting
 Introduction
 Various types of Capital budgeting techniques
 NPV, PI, IRR and PBP (introduction)
 Example and Screenshots
25. Weighted Average Cost of Capital (WACC)
 Introduction and Syntax
 Example and screenshots
 Financial Modeling
1. Introduction:

Financial modeling is the process of creating a summary of a company's expenses and

earnings in the form of a spreadsheet that can be used to calculate the impact of a future event
or decision.

A financial model has many uses for company executives. Financial analysts most often use it
to analyze and anticipate how a company's stock performance might be affected by future
events or executive decisions.

Financial modeling is a representation in numbers of a company's operations in the past,

present, and the forecasted future. Such models are intended to be used as decision-making
tools. Company executives might use them to estimate the costs and project the profits of a
proposed new project.

Financial analysts use them to explain or anticipate the impact of events on a company's stock,
from internal factors, such as a change of strategy or business model to external factors such as
a change in economic policy or regulation.

Financial models are used to estimate the valuation of a business or to compare businesses to
their peers in the industry. They also are used in strategic planning to test various scenarios,
calculate the cost of new projects, decide on budgets, and allocate corporate resources.

2. Importance

Financial Modeling is the main core element to take the major business decisions in a corporate
world. Financial models are the most valuable tools for executing business choices to get
perfect solutions. A model can advise you regarding the grade of risk associated with
implementing certain decisions.
They can also be utilized to devise an effective financial statement that reflects the finances and
operations of company. These models help online internet businesses take quick decisions
more confidently.

Uses of Financial Modeling:

 In the finance industry, the value of financial modeling is increasing rapidly.

 Financial modeling acts as an important tool which enables business ideas and risks to
be estimated in a cost-effective way.
 Financial modeling is an action of creating attractive representation of a financial
situation of company.
 Financial Models are mathematical terms aimed at representing the economic
performance of a business entity

3. Components
The output of a financial model is used for decision making and performing financial analysis,
whether inside or outside of the company. Inside a company, executives will use financial
models to make decisions about:

 Raising capital (debt and/or equity)

 Making acquisitions (businesses and/or assets)
 Growing the business organically (e.g., opening new stores, entering new markets, etc.)
 Selling or divesting assets and business units
 Budgeting and forecasting (planning for the years ahead)
 Capital allocation (priority of which projects to invest in)
 Valuing a business
 Financial statement analysis/ratio analysis
 Management accounting
 MS-Excel
1) Introduction

Microsoft Excel is a spreadsheet program used to record and analyze numerical and statistical
data. Microsoft Excel provides multiple features to perform various operations like calculations,
pivot tables, graph tools, macro programming, etc. It is compatible with multiple OS like
Windows, macOS, Android and iOS. A Excel spreadsheet can be understood as a collection of
columns and rows that form a table. Alphabetical letters are usually assigned to columns, and
numbers are usually assigned to rows. The point where a column and a row meet is called a
cell. The address of a cell is given by the letter representing the column and the number
representing a row.

2) Features

Various editing and formatting can be done on an Excel spreadsheet. Discussed below are the
various features of MS Excel.
The image below shows the composition of features in MS Excel:
  Home

Comprises options like font size, font styles, font colour, background colour, alignment, formatting
options and styles, insertion and deletion of cells and editing options

 Insert

Comprises options like table format and style, inserting images and figures, adding graphs, charts
and sparklines, header and footer option, equation and symbols

 Page Layout

Themes, orientation and page setup options are available under the page layout option

 Formulas

Since tables with a large amount of data can be created in MS excel, under this feature, you can add
formulas to your table and get quicker solutions

 Data

Adding external data (from the web), filtering options and data tools are available under this category

 Review

Proofreading can be done for an excel sheet (like spell check) in the review category and a reader
can add comments in this part

 View

Different views in which we want the spreadsheet to be displayed can be edited here. Options to
zoom in and out and pane arrangement are available under this category
 CELL REFRENCING
In Microsoft Excel, cell referencing is the method by which you refer to a cell or series of
cells in a formula. Cell referencing is not important unless you plan to copy the formula
to a number of other cells.

In Excel, cell referencing is relative by default. For example, suppose you use this
formula in your spreadsheet:

=B7 + B8

If you copy it to the cell below, the addresses in the formula change by one cell like this:

=B8 + B9

Relative cell references are very useful, but there will be times when you wish to
override this default and use absolute cell addressing to keep all or part of the formula
constant. In other words, you can copy the formula to other cells, but the rows or
columns or both will remain the same (absolute) no matter where you copy the formula
on the sheet.

To use absolute cell references, type a dollar sign ($) in front of the part of the address
you wish to keep constant, for example:

 To keep the column constant, type a dollar sign in front of the first part of the address
(e.g., $B22).
 To keep the row constant, type a dollar sign in front of the second part of the address
(e.g., B$22).
 Finally, to keep the whole address constant, type dollar signs in front of both parts of the
address (e.g., $B$22).
You can also use a keyboard command to change cell referencing in existing formulas
from absolute to relative and vice versa:

1. Click the cell with the formula you wish to change, and then click the address you would
like to change in the Formula Bar.

2. In Excel for Windows, when your cursor is blinking on or within the address, press
the F4 key. In Excel for Mac OS X, press Command-t. You will see dollar signs appear
and disappear each time you press F4 or Command-t, until you have the cell referencing
you desire.
 DATA FORMATING
Formatting in excel is a neat trick in excel which is used to change the appearance of
the data represented in the worksheet, formatting can be done in multiple ways such as
we can format the font of the cells or we can format the table by using the styles and
format tab available in the home tab.
Let us understand the working on Data formatting in excel by simple examples. Now let
us suppose we have a simple report of sales for an organization as below:

This report is not attractive to viewers; we need to format the data.

Now to format data in excel, we will make

 The text of the column head bold,

 Font size larger,
 Adjust the column width by using the shortcut key (Alt+H+O+I) after selecting the entire
table (using Ctrl+A),
 Center aligning the data,
 Apply the outline border by using (Alt+H+B+T),
 Apply background color by using the ‘Fill Color’ command available in the ‘Font’ group
on ‘Home.’

We will be applying the same format for the last ‘Total’ row of the table by using
the ‘Format Painter’ command available in the ‘Clipboard’ group on the ‘Home’ tab.

As the amount collected is a currency, we should format the same as currency using the
command available in the „Number‟ group placed on the ‘Home’ tab.
After selecting the cells, which we need to format as currency, we need to open
the ‘Format Cells’ dialog box by clicking the arrow marked above.

Choose ‘Currency’ and click on ‘OK.’

We can also apply the outline border to the table.

Now we will be creating the label for the report by using ‘Shapes.’ To create the shape
above the table, we need to add two new rows, for that we will be selecting the row
by ‘Shift+Spacebar’ and then insert two rows by pressing ‘Ctrl+’+” twice.
To insert the shape, we will be choosing an appropriate shape from
the ‘Shapes’ command available in the ‘Illustration’ group in the ‘Insert’ tab.Create
the shape according to the requirement and with the same color as the heads of the
column and add the text on shape by right-

clicking on the shapes and choosing ‘Edit Text.’

We can also use the ‘Format’ contextual tab for formatting the shape using various
commands as ‘Shape Outline,’ ‘Shape Fill,’ ‘Text Fill,’ ‘Text Outline,’ etc. We can
also apply the excel formatting on text using the commands available in
the ‘Font’ group placed on the ‘Home’ tab.
We can also use ‘Conditional Formatting’ to taking the attention of the viewers
for ‘Top 3’ salesperson and ‘Bottom 3’ salesperson.

To format the cells that rank in the top 3 with Green Fill with Dark Green Text.
Also, format the cells that rank in the Bottom 3 with Light Red with Dark Red Text.

We can apply other conditional formatting option also, which is ‘Data Bars.’

We can also create the chart to display the data, which is also the part of ‘Data
Formatting Excel.’
 CONDITIONAL FORMATING
With conditional formatting, you can select one or more cells, and create rules
(conditions) for when and how those cells are formatted. The conditions can be, based
on the selected cell's contents, or based on the contents of another cell.
You can control the following formats:

 Number format
 Font, font style, and font colour (but not font size)
 Fill colour and fill pattern
 Border colour and border style (but not border thickness)

If the rules (conditions) that you specified are met, then the formatting is applied
For example, you can set conditional formatting so that a cell turns red if its value is low,
and turns green if its value is high.
Conditional Formatting Examples : Types

There are 5 types of conditional formatting visualizations available:

 Background Color Shading (of cells)

 Foreground Color Shading (of fonts)

 Data Bars

 Icons (which have 4 different image types)

 Values

Background Shading
Foreground Shading

Databars
Icons (4 types)

Values
Apply Conditional Formatting to a Cell
In this example, you'll set conditional formats so that a cell:

 turns green if it contains a value higher than 75 and

 turns red if it contains a value lower than 50.

Follow these steps to apply conditional formatting to cells:

1. In cell I1, type the high value -- 75

2. In cell I2, type the low value -- 50

3. Select the cells to be formatted. In this example, cells E2:E7 are selected.
4. On the Ribbon's Home tab, click Conditional Formatting

5. To format the high values, click Highlight Cell Rules, then click Greater Than...

6. In the Greater Than window, delete the value that appears, and click on cell I1,
where the High value is entered.
 7. Click the drop down list for formats, and click Custom Format.

8. In the Format Cells window, click the Fill tab, and click on the green fill colour
that you want.

9. Click OK to close the Format Cells window, and click OK to close the Greater
Than window.

The cells with values greater than 75 are now coloured green.
 MACROS
A macro in Access is a tool that allows you to automate tasks and add functionality to
your forms, reports, and controls. For example, if you add a command button to a form,
you associate the button's OnClick event to a macro, and the macro contains the
commands that you want the button to perform each time it is clicked.

In Access, it is helpful to think of macros as a simplified programming language that you

write by building a list of actions to perform. When you build a macro, you select each
action from a drop-down list and then fill in the required information for each action.
Macros enable you to add functionality to forms, reports, and controls without writing
code in a Visual Basic for Applications (VBA) module. Macros provide a subset of the
commands that are available in VBA, and most people find it easier to build a macro
than to write VBA code.

For example, suppose that you want to start a report directly from one of your data entry
forms. You can add a button to your form and then create a macro that opens the
report. The macro can either be a standalone macro (a separate object in the
database), which is then bound to the OnClick event of the button, or the macro can be
embedded directly into the OnClick event of the button itself. Either way, when you click
the button, the macro runs and opens the report. These types of macros are generally
referred to as user interface macros

Enable macros when the Message Bar appears

When you open a file that has macros, the yellow message bar appears with a shield
icon and the Enable Content button. If you know the macro, or macros, are from a
reliable source, use the following instructions:

 On the Message Bar, click Enable Content.

The file opens and is a trusted document.

The following image is an example of the Message Bar when macros are in the file.
 Enable macros just for the current session
Use the following instructions to enable macros for the duration that the file is open.
When you close the file, and then reopen it, the warning appears again.

1. Click the File tab.

2. In the Security Warning area, click Enable Content.
3. Select Advanced Options.
4. In the Microsoft Office Security Options dialog box, click Enable content for this
session for each macro.
5. Click OK.

Change macro settings in the Trust Center

Macro settings are located in the Trust Center. However, if you work in an organization,
the system administrator might have changed the default settings to prevent anyone
from changing settings.

1. Click the File tab.

2. Click Options.
3. Click Trust Center, and then click Trust Center Settings.
4. In the Trust Center, click Macro Settings.

5. Make the selections that you want, then click OK.

 Run a macro

There are several ways to run a macro in Microsoft Excel. A macro is an action or a set
of actions that you can use to automate tasks. Macros are recorded in the Visual Basic
for Applications programming language. You can always run a macro by clicking
the Macros command on the Developer tab on the ribbon. Depending on how a macro
is assigned to run, you might also be able to run it by pressing a combination shortcut
key, by clicking a button on the Quick Access Toolbar or in a custom group on the
ribbon, or by clicking on an object, graphic, or control. In addition, you can run a macro
automatically whenever you open a workbook.

Run a macro from the Developer tab

1. Open the workbook that contains the macro.

2. On the Developer tab, in the Code group, click Macros.

3. In the Macro name box, click the macro that you want to run, and press the Run button.

4. You also have other choices:

 Options - Add a shortcut key, or a macro description.

 Step - This will open the Visual Basic Editor to the first line of the macro.
Pressing F8 will let you step through the macro code one line at a time.

 Edit - This will open the Visual Basic Editor and let you edit the macro code as needed.
Once you've made changes, you can press F5 to run the macro from the editor

Run a macro by pressing a combination shortcut key

You can add a combination shortcut key to a macro when you record it, and you can
also add one to an existing macro:

1. On the Developer tab, in the Code group, click Macros.

2. In the Macro name box, click the macro that you want to assign to a combination
shortcut key.

3. Click Options.

The Macro Options dialog box appears.

4. In the Shortcut key box, type any lowercase or uppercase letter that you want to use
with the shortcut key
 Introduction to What-If Analysis

By using What-If Analysis tools in Excel, you can use several different sets of values in
one or more formulas to explore all the various results.

For example, you can do What-If Analysis to build two budgets that each assumes a
certain level of revenue. Or, you can specify a result that you want a formula to produce,
and then determine what sets of values will produce that result. Excel provides several
different tools to help you perform the type of analysis that fits your needs.

Use scenarios to consider many different variables

A Scenario is a set of values that Excel saves and can substitute automatically in cells
on a worksheet. You can create and save different groups of values on a worksheet and
then switch to any of these new scenarios to view different results.

For example, suppose you have two budget scenarios: a worst case and a best case.
You can use the Scenario Manager to create both scenarios on the same worksheet,
and then switch between them. For each scenario, you specify the cells that change
and the values to use for that scenario. When you switch between scenarios, the result
cell changes to reflect the different changing cell values.

1. Changing cells

2. Result cell

1. Changing cells

2. Result cell

If several people have specific information in separate workbooks that you want to use
in scenarios, you can collect those workbooks and merge their scenarios.
After you have created or gathered all the scenarios that you need, you can create a
Scenario Summary Report that incorporates information from those scenarios. A
scenario report displays all the scenario information in one table on a new worksheet.

Use Goal Seek to find out how to get a desired result

If you know the result that you want from a formula, but you're not sure what input value
the formula requires to get that result, you can use the Goal Seek feature. For example,
suppose that you need to borrow some money. You know how much money you want,
how long a period you want in which to pay off the loan, and how much you can afford
to pay each month. You can use Goal Seek to determine what interest rate you must
secure in order to meet your loan goal.

Cells B1, B2, and B3 are the values for the loan amount, term length, and interest rate.

Cell B4 displays the result of the formula =PMT(B3/12,B2,B1).

Use Data Tables to see the effects of one or two variables on

a formula

If you have a formula that uses one or two variables, or multiple formulas that all use
one common variable, you can use a Data Table to see all the outcomes in one place.
Using Data Tables makes it easy to examine a range of possibilities at a glance.
Because you focus on only one or two variables, results are easy to read and share in
tabular form. If automatic recalculation is enabled for the workbook, the data in Data
Tables immediately recalculates; as a result, you always have fresh data.
Cell B3 contains the input value.
Cells C3, C4, and C5 are values Excel substitutes based on the value entered in B3.

A Data Table cannot accommodate more than two variables. If you want to analyze
more than two variables, you can use Scenarios. Although it is limited to only one or two
variables, a Data Table can use as many different variable values as you want. A
Scenario can have a maximum of 32 different values, but you can create as many
scenarios as you want.
 Pivot table

A pivot table is a data summarization tool that is used in the context of data
processing. Pivot tables are used to summarize, sort, reorganize, group, count, total or
average data stored in a database. It allows its users to transform columns into rows
and rows into colum
ns. It allows grouping by any data field.

Creation of pivot table

After your source data is prepared, you can create a pivot table. First, see which pivot
table layouts are suggested by Excel.

1. Select any cell in the source data table.

2. On the Ribbon, click the Insert tab.
3. In the Tables group, click PivotTables.

Substitution of count function:-

The Microsoft Excel SUBSTITUTE function replaces a set of characters with another.
The SUBSTITUTE function is a built-in function in Excel that is categorized as a
String/Text Function. It can be used as a worksheet function (WS) in Excel.

Cross checking of data:-

Data cross checking can mean rechecking the data ( numbers for example) to make
sure they have been entered accurately. VAli duty checking can be ensuring the base of
the data was not skewed, tampered with or faked. It enables you to
validate data through cross-verification from more than two sources.
 Lookup Functions

1. VLOOKUP:-
VLOOKUP is an Excel function to lookup and retrieve data from a specific column in table.
VLOOKUP supports approximate and exact matching, and wildcards (* ?) for partial matches.
The "V" stands for "vertical". Lookup values must appear in the first column of the table, with
lookup columns to the right.
Syntax:=VLOOKUP (value, table, col_index, [range_lookup])

2. HLOOKUP :-

HLOOKUP is an Excel function to lookup and retrieve data from a specific row in table. The "H"
in HLOOKUP stands for "horizontal", where lookup values appear in the first row of the table,
moving horizontally to the right. HLOOKUP supports approximate and exact matching, and
wildcards (* ?) for finding partial matches.
Syntax: =HLOOKUP (value, table, row_index, [range_lookup])
3. Index function:-

Returns the value of an element in a table or an array, selected by the row and column number
indexes.
Use the array form if the first argument to INDEX is an array constant.
INDEX(array, row_num, [column_num])
 INDEX and MATCH

INDEX and MATCH is the most popular tool in Excel for performing more advanced
lookups. This is because INDEX and MATCH is incredibly flexible – you can do
horizontal and vertical lookups, 2-way lookups, left lookups, case-sensitive lookups, and
even lookups based on multiple criteria. If you want to improve your Excel skills, INDEX
and MATCH should be on your list.

The INDEX Function

The INDEX function in Excel is fantastically flexible and powerful, and you'll find it in a
huge number of Excel formulas, especially advanced formulas. But what does INDEX
actually do? In a nutshell, INDEX retrieves the value at a given location in a range. For
example, let's say you have a table of planets in our solar system (see below), and you
want to get the name of the 4th planet, Mars, with a formula. You can use INDEX like
this:

=INDEX(B3:B11,4)

What if you want to get the diameter of Mars with INDEX? In that case, we can supply
both a row number and a column number, and provide a larger range. The INDEX
formula below uses the full range of data in B3:D11, with a row number of 4 and column
number of 2:

=INDEX(B3:D11,4,2)
INDEX retrieves the value at row 4, column 2.
To summarize, INDEX gets a value at a given location in a range of cells based on
numeric position. When the range is one-dimensional, you only need to supply a row
number. When the range is two-dimensional, you'll need to supply both the row and
column number.

At this point, you may be thinking "So what? How often do you actually know the
position of something in a spreadsheet?"

Exactly right. We need a way to locate the position of things we're looking for.

Enter the MATCH function.

 The MATCH function

The MATCH function is designed for one purpose: find the position of an item in a
range. For example, we can use MATCH to get the position of the word "peach" in this
list of fruits like this:

=MATCH("peach",B3:B9,0)

=MATCH("peach",C4:I4,0)

INDEX and MATCH together

Now that we've covered the basics of INDEX and MATCH, how do we combine the two
functions in a single formula? Consider the data below, a table showing a list of
salespeople and monthly sales numbers for three months: January, February, and
March.

Let's say we want to write a formula that returns the sales number for February for a
given salesperson. From the discussion above, we know we can give INDEX a row and
column number to retrieve a value. For example, to return the February sales number
for Frantz, we provide the range C3:E11 with a row 5 and column 2:

=INDEX(C3:E11,5,2) // returns $5194

But we obviously don't want to hardcode numbers. Instead, we want a dynamic lookup.
How will we do that? The MATCH function of course. MATCH will work perfectly for
finding the positions we need. Working one step at a time, let's leave the column
hardcoded as 2 and make the row number dynamic. Here's the revised formula, with the
MATCH function nested inside INDEX in place of 5:

=INDEX(C3:E11,MATCH("Frantz",B3:B11,0),2)

Taking things one step further, we'll use the value from H2 in MATCH:

=INDEX(C3:E11,MATCH(H2,B3:B11,0),2)
Text Functions in Excel

Excel is mostly about the numerical data, but at times you can come across the data
which has too much text and that is the time when Text Functions in Excel will help you
to simplify the things easily.

Want to learn Avanced Excel? Click here

Here are few text functions you should know

1.Left()
You can use the Left function when you want to extract the leftmost characters from a
string. Syntax =left(text, num_char)

Similarly, you can also use the Right function to extract the rightmost characters from a
string.

2. Len ()
Len function in Excel helps you to know the length of a string that is number of
characters in a string. Syntax = LEN(text)
Note – Spaces are included while calculating length.
3. Mid ()
Mid function in Excel is used to extract the characters from the middle of a string.
Syntax = MID(text, start_char, num_chars)

4. Find ()
Find function in Excel is used when you want to know the position of certain characters
in a particular string. Syntax =FIND(find_text, within_text,[start_num])

5. Proper ()
Proper function in Excel capitalizes each word in the string that is, it converts the case
into proper case. Syntax =PROPER(Text)
6. Rept ()
Rept function in Excel is used when you want a certain text to be repeated certain
number of times. Syntax =REPT(Text, number_times)

7. Trim()
Trim function in Excel removes the unnecessary spaces from a particular string.
Syntax =TRIM(Text )

8. Upper()
Upper function in Excel converts the text into Upper case from lower case.
Syntax =UPPER(Text )
9. Substitute ()
Substitute function in Excel helps to replace existing text with a new text in a particular
string. Syntax =SUBSTITUTE(text, old_text, new_text, instance number)

10. Concatenate ()
Concatenate function in Excel helps to join the text of two or more cells.
Syntax =CONCATENATE(text1, text2….)
Count :-

The Excel COUNT function returns the count

of values that are numbers, generally cells that
contain numbers. Values can be supplied as
constants, cell references, or ranges.
Syntax: =COUNT (value1, [value2], ...)

CountA:-

The Excel COUNTA function returns the count of

cells that contain numbers, text, logical values, error
values, and empty text (""). COUNTA does not count
empty cells.
Syntax: =COUNTA (value1, [value2], ...)

Countblank:-

Use the COUNTBLANK function, one of the Statistical functions, to count the number of empty
cells in a range of cells.

Syntax: =COUNTBLANK(RANGE)
 Statistical Functions in Excel

5. Average Function

The most common function we usually use in our daily lives is the average (or mean).
The AVERAGE function simply returns the arithmetic mean of all the cells in a given
range:

 AVERAGE(number1, [number2], …)

But there‟s one simple drawback to using averages – they are prone to outliers.
Therefore, they can paint a very unrealistic picture in our analysis. Let‟s find out the
average number of goods sold:dispersed

The average comes out to be ~ 365.2. We will be doing similar calculations for cost as
well.

6. Median Function

The problem of outliers can be solved by using another function for the central tendency
– median. The median function returns the middle value of the given range of cells. The
syntax is quite simple:

 MEDIAN(number1, [number2], …)

Let‟s find the median of the number of goods sold in our sports store and see how close
this is to our average value:
We see that the median comes out to be ~ 320 which is pretty close to the average
value. It means there is not much fluctuation in our data. Let‟s see if this is the case for
the cost of goods:
The median and the average value for the cost of each item vary a lot. For example, the
cost of a ball is 50 but the cost of a bat is 2000 – resulting in high dispersion.

7. Mode Function

For numerical values, mean and median usually, suffice but what about categorical
values? Here, mode comes into the picture. Mode returns the most frequent and
repeated value in the given range of values:

 MODE.SNGL(number1,[number2],…)

This discount value is 10%.

8. Standard Deviation Function

Standard Deviation is one of the ways to quantify dispersion. It is a measure of how

widely values are dispersed from the average value.

Here, we will be using the STDEV.P function which is used to calculate standard
deviation based on the entire population given as arguments:

 STDEV.P(number1,[number2],…)

Note: STDEV.P function assumes that its arguments are the entire population. If that’s
not the case, you may use the function STDEV.S() function.For a large sample size, the
standard deviation of the population and samples will return approximately similar
values. Previously, we have calculated mean and median to get a picture of the central
tendency. Let‟s find out the standard deviation to see the level of dispersion:
 FORECASTING
If you have historical time-based data, you can use it to create a forecast. When you
create a forecast, Excel creates a new worksheet that contains both a table of the
historical and predicted values and a chart that expresses this data. A forecast can help
you predict things like future sales, inventory requirements, or consumer trends.

Information about how the forecast is calculated and options you can change can be
found at the bottom of this article.

Create a forecast

1. In a worksheet, enter two data series that correspond to each other:

 A series with date or time entries for the timeline
 A series with corresponding values

These values will be predicted for future dates.

2. Note: The timeline requires consistent intervals between its data points. For example,
monthly intervals with values on the 1st of every month, yearly intervals, or numerical
intervals. It‟s okay if your timeline series is missing up to 30% of the data points, or has
several numbers with the same time stamp. The forecast will still be accurate. However,
summarizing data before you create the forecast will produce more accurate forecast
results.
3. Select both data series.

Tip: If you select a cell in one of your series, Excel automatically selects the rest of the
data.

4. On the Data tab, in the Forecast group, click Forecast Sheet.

5. In the Create Forecast Worksheet box, pick either a line chart or a column chart for
the visual representation of the forecast.
6. In the Forecast End box, pick an end date, and then click Create.

Excel creates a new worksheet that contains both a table of the historical and predicted
values and a chart that expresses this data.

You'll find the new worksheet just to the left ("in front of") the sheet where you entered
the data series.
 TREND AND FORECAST
"Trend" and "forecast" are very close concepts, but still there is a difference:

 Trend is something that represents the current or past days. For example, by analyzing
the recent sales numbers, you can determine the cash flow trend and understand how
your business has performed and is currently performing.
 Forecast is something that relates to the future. For example, by analyzing the
historical data, you can project future changes and predict where current business
practices will take you.

In terms of Excel, this distinction is not so obvious because the TREND function can not
only calculate current trends, but also return future y-values, i.e. do trend forecasting.

The difference between TREND and FORECAST in Excel is as follows:

 The FORECAST function can only predict future values based on the existing values.
The TREND function can calculate both current and future trends.
 The FORECAST function is used as a regular formula and returns a single new y-value
for a single new-x value. The TREND function is used as an array formula and
computes multiple y-values for multiple x-values.

When used for time series forecasting, both functions produce the
same linear trend/forecast because their calculations are based on the same
equation.

Please take a look at the screenshot below and compare the results returned by the
following formulas:

=TREND(B2:B13,A2:A13,A14:A17)

=FORECAST(A14,$B$2:$B$13,$A$2:$A$13)
 IF AND OR FUNCTION
The IF function allows you to make a logical comparison between a value and what you
expect by testing for a condition and returning a result if that condition is True or False.

 =IF(Something is True, then do something, otherwise do something else)

But what if you need to test multiple conditions, where let‟s say all conditions need to be
True or False (AND), or only one condition needs to be True or False (OR), or if you
want to check if a condition does NOT meet your criteria? All 3 functions can be used
on their own, but it‟s much more common to see them paired with IF functions.

Technical Details

Here are overviews of how to structure AND, OR and NOT functions individually. When
you combine each one of them with an IF statement, they read like this:

 AND – =IF(AND(Something is True, Something else is True), Value if True, Value if

False)
 OR – =IF(OR(Something is True, Something else is True), Value if True, Value if False)
 NOT – =IF(NOT(Something is True), Value if True, Value if False)

Examples

Following are examples of some common nested IF(AND()), IF(OR()) and IF(NOT())
statements. The AND and OR functions can support up to 255 individual conditions, but
it‟s not good practice to use more than a few because complex, nested formulas can get
very difficult to build, test and maintain. The NOT function only takes one condition.

Here are the formulas spelled out according to their logic:

Formula Description
Formula Description
=IF(AND(A2>0,B2<100),TRUE, FALSE) IF A2 (25) is greater than 0, AND B2 (75) is less than
100, then return TRUE, otherwise return FALSE. In
this case both conditions are true, so TRUE is
returned.
=IF(AND(A3="Red",B3="Green"),TRUE,FALSE) If A3 (“Blue”) = “Red”, AND B3 (“Green”) equals
“Green” then return TRUE, otherwise return FALSE. In
this case only the first condition is true, so FALSE is
returned.
=IF(OR(A4>0,B4<50),TRUE, FALSE) IF A4 (25) is greater than 0, OR B4 (75) is less than
50, then return TRUE, otherwise return FALSE. In this
case, only the first condition is TRUE, but since OR
only requires one argument to be true the formula
returns TRUE.
=IF(OR(A5="Red",B5="Green"),TRUE,FALSE) IF A5 (“Blue”) equals “Red”, OR B5 (“Green”) equals
“Green” then return TRUE, otherwise return FALSE. In
this case, the second argument is True, so the formula
returns TRUE.
=IF(NOT(A6>50),TRUE,FALSE) IF A6 (25) is NOT greater than 50, then return TRUE,
otherwise return FALSE. In this case 25 is not greater
than 50, so the formula returns TRUE.
=IF(NOT(A7="Red"),TRUE,FALSE) IF A7 (“Blue”) is NOT equal to “Red”, then return
TRUE, otherwise return FALSE.

Note that all of the examples have a closing parenthesis after their respective conditions
are entered. The remaining True/False arguments are then left as part of the outer IF
statement. You can also substitute Text or Numeric values for the TRUE/FALSE values
to be returned in the examples.

Here are some examples of using AND, OR and NOT to evaluate dates.

Here are the formulas spelled out according to their logic:

Formula Description
Formula Description
=IF(A2>B2,TRUE,FALSE) IF A2 is greater than B2, return TRUE,
otherwise return FALSE. 03/12/14 is greater
than 01/01/14, so the formula returns TRUE.
=IF(AND(A3>B2,A3<C2),TRUE,FALSE) IF A3 is greater than B2 AND A3 is less than
C2, return TRUE, otherwise return FALSE.
In this case both arguments are true, so the
formula returns TRUE.
=IF(OR(A4>B2,A4<B2+60),TRUE,FALSE) IF A4 is greater than B2 OR A4 is less than
B2 + 60, return TRUE, otherwise return
FALSE. In this case the first argument is
true, but the second is false. Since OR only
needs one of the arguments to be true, the
formula returns TRUE. If you use the
Evaluate Formula Wizard from the Formula
tab you'll see how Excel evaluates the
formula.
=IF(NOT(A5>B2),TRUE,FALSE) IF A5 is not greater than B2, then return
TRUE, otherwise return FALSE. In this case,
A5 is greater than B2, so the formula returns
FALSE.
Ratio analysis is a quantitative procedure of obtaining a look into a firm‟s functional
efficiency, liquidity, revenues, and profitability by analysing its financial records and
statements. Ratio analysis is a very important factor that will help in doing an analysis of
the fundamentals of equity.

Analysts and investors make use of the methods for ratio analysis to study and evaluate
the fiscal wellbeing of businesses by closely examining the historical performance and
monetary statements.

Comparative data and analysis can give an insight into the performance of
the business over a given period of time by comparing it with the industry standards. At
the same time, it also measures how well a business racks up against other businesses
functioning in the same sector.

Liquidity Ratios
These ratios evaluate a business‟ efficiency to settle its debts as and when they
become due, with its revenues or assets in the disposal. Liquidity ratios cover quick
ratio, current ratio, and the working capital ratio.

Solvency Ratio
Solvency ratios are also referred to as the financial leverage ratios. These ratios will
compare an organisation‟s level of debt with assets, earnings, and equity in order to
determine the possibility of an organisation to stay in operation over an extended period
of time by settling all its short and long-term debts and by paying coupon/interest
regularly. Solvency ratios include interest coverage ratios, debt-asset ratios, and debt-
equity ratios.

Profitability ratios
Profitability ratios indicate how efficiently a business will be able to generate revenues
and profits through its operations. Profit margins, return on equity, return on assets,
gross margin ratios, and return on capital employed are good examples of profitability
ratios.

Efficiency ratios
Efficiency ratios are also called as the activity ratios. These ratios determine the
efficiency of a business by using its liabilities and assets to boost sales and optimise
profits. Inventory turnover and turnover ratios are examples of efficiency ratios
 What Is Earnings Per Share (EPS)?
Earnings per share (EPS) is calculated as a company's profit divided by the outstanding
shares of its common stock. The resulting number serves as an indicator of a
company's profitability. It is common for a company to report EPS that is adjusted
for extraordinary items and potential share dilution.

The higher a company's EPS, the more profitable it is considered to be.

KEY TAKEAWAYS

 Earnings per share (EPS) is a company's net profit divided by the number of
common shares it has outstanding.
 EPS indicates how much money a company makes for each share of its stock
and is a widely used metric for estimating corporate value.
 A higher EPS indicates greater value because investors will pay more for a
company's shares if they think the company has higher profits relative to its share
price.
 EPS can be arrived at in several forms, such as excluding extraordinary items or
discontinued operations, or on a diluted basis.
 Formula and Calculation for EPS
Earnings per share value is calculated as net income (also known as profits or earnings)
divided by available shares. A more refined calculation adjusts the numerator and
denominator for shares that could be created through options, convertible debt, or
warrants. The numerator of the equation is also more relevant if it is adjusted for
continuing operations.

To calculate a company's EPS, the balance sheet and income statement are used to
find the period-end number of common shares, dividends paid on preferred stock (if
any), and the net income or earnings. It is more accurate to use a weighted average
number of common shares over the reporting term because the number of shares can
change over time.
 EV/EBITDA
EV/EBITDA is a ratio that compares a company‟s Enterprise Value (EV) to its Earnings
Before Interest, Taxes, Depreciation & Amortization (EBITDA). The EV/EBITDA ratio is
commonly used as a valuation metric to compare the relative value of different
businesses.

In this guide, we will break down the EV/EBTIDA multiple into its various components
and walk you through how to calculate it step by step. Learn more in CFI‟s Business
Valuation Techniques course.

What is the EV/EBITDA multiple used for?

The ratio of EV/EBITDA is used to compare the entire value of a business with the
amount of EBITDA it earns on an annual basis. This ratio tells investors how many
times EBITDA they have to pay, were they to acquire the entire business.

The most common uses of EV/EBITDA are:

 To determine what multiple a company is currently trading at (I.e 8x)

 To compare the valuation of multiple companies (i.e. 6x, 7.5x, 8, and 5.5x across
a group)
 To calculate the terminal value in a Discounted Cash Flow DCF model
 In negotiations for the acquisition of a private business (i.e. the acquirer offers 4x
EBITDA)
 In calculating a target price for a company in an equity research report

To learn more about how to use EV/EBITDA multiples, check out our business valuation
fundamentals course.

What is EV?

EV stands for Enterprise Value and is the

numerator in the EV/EBITDA ratio. A firm‟s
EV is equal to its equity value (or market
capitalization) plus its debt (or financial
commitments) less any cash (debt less cash
is referred to as net debt).
To learn more, see our guide to Enterprise Value vs Equity Value.

What is EBITDA?

EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. It
often used in valuation as a proxy for cash flow, although for many industries it is not a
useful metric.

To learn more, read our Ultimate Cash Flow Guide.

EV/EBITDA in a Comps Table

The most common way to see the EV/EBITDA multiple displayed is in a comparable
company analysis (referred to as Comps for short).

Below is an example of the EV/EBITDA ratios for each of the 5 companies in the
beverage industry. As you will see by the red lines highlighting the relevant information,
by taking the EV column and dividing it by the EBITDA column, one arrives at the
EV/EBITDA column.

An analyst looking at this table may make several conclusions, depending on other
information they have about the company. For example, Monster Beverage has the
highest EV/EBITDA multiple which could be because it has the highest growth rate, is
considered the lowest risk, has the best management team, and so on.

Pros and cons of EV/EBITDA

There are many pros and cons to using this ratio. As with most things, whether or not it
is considered a “good” metric depends on the specific situation.

Pros include:

 Easy to calculate with publicly available information

 Widely used and referenced in the financial community
 Works well for valuing stable, mature businesses with low capital expenditures
 Good for comparing relative values of different businesses

Cons include:

 May not be a good proxy for cash flow

 Does not take into account capital expenditures
 Hard to adjust for different growth rates
 Hard to justify observed “premiums” and “discounts” (mostly subjective)

To learn more about valuation multiples, check out our business valuation fundamentals
course.
How to learn to calculate EV/EBITDA

The best way to learn is by doing. If you want to calculate Enterprise Value to EBITDA
ratios for a group of companies, follow these steps and try on your own.

10 steps to calculate EV/EBITDA and value a company:

1. Pick an industry (i.e. the beverage industry, as in our example)

2. Find 5-10 companies that you believe are similar enough to compare
3. Research each company and narrow your list by eliminating any companies that
are too different to be comparable (i.e. too big/small, different product mix,
different geographic focus, etc.)
4. Gather 3 years of historical financial information for each company (i.e. revenue,
gross profit, EBITDA, and EPS)
5. Gather current market data for each company (i.e. share price, number of shares
outstanding, and net debt)
6. Calculate the current EV for each company (i.e. market capitalization plus net
debt)
7. Divide EV by EBITDA for each of the historical years of financial data you
gathered
8. Compare the EV/EBITDA multiples for each of the companies
9. Determine why companies have a premium or discounted EV/EBITDA ratio
10. Make a conclusion about what EV/EBITDA multiple is appropriate for the
company you‟re trying to value
 EV/sales
Enterprise value-to-sales (EV/sales) is a financial valuation measure that compares
the enterprise value (EV) of a company to its annual sales. The EV/sales multiple gives
investors a quantifiable metric of how to value a company based on its sales, while
taking account of both the company's equity and debt. Enterprise value-to-sales
(EV/sales) is a financial ratio that measures how much it would cost to purchase a
company's value in terms of its sales.

 A lower EV/sales multiple indicates that a company is more attractive investment

as it may be relatively undervalued.
 This measurement is considered more accurate than the related price-to-sales,
because EV/sales takes into account a company's debt load.
The Formula for Enterprise Value-to-Sales

How to Calculate Enterprise Value-to-Sales

Enterprise value-to-sales is calculated by:

1. Adding total debt to a company‟s market cap

2. Subtracting out cash and cash equivalents
3. And then dividing the result by the company‟s annual sales

A slightly more complicated version of enterprise value with a few more variables is
sometimes used. The more complex formula for EV is:
 Capital Budgeting
Capital budgeting is a process of evaluating investments and huge expenses in order to
obtain the best returns on investment. An organization is often faced with the
challenges of selecting between two projects/investments or the buy vs replace
decision. Ideally, an organization would like to invest in all profitable projects but due to
the limitation on the availability of capital an organization has to choose between
different projects/investments. Capital budgeting as a concept affects our daily lives.
Let‟s look at an example-Your mobile phone has stopped working! Now, you have two
choices: Either buy a new one or get the same mobile repaired. Here, you
may conclude that the costs of repairing the mobile increases the life of the phone.
However, there could be a possibility that the cost to buy a new cell phone would be
lesser than its repair costs. So, you decide to replace your cell phone and you proceed
to look at different phones that fit your budget!

What are the objectives of Capital budgeting?

Capital expenditures are huge and have a long-term effect. Therefore, while performing
a capital budgeting analysis an organization must keep the following objectives in mind:

1. Selecting profitable projects

An organization comes across various profitable projects frequently. But due to capital
restrictions, an organization needs to select the right mix of profitable projects that will
increase its shareholders‟ wealth.

2. Capital expenditure control

Selecting the most profitable investment is the main objective of capital budgeting.
However, controlling capital costs is also an important objective. Forecasting capital
expenditure requirements and budgeting for it, and ensuring no investment
opportunities are lost is the crux of budgeting.

3. Finding the right sources for funds

Determining the quantum of funds and the sources for procuring them is another
important objective of capital budgeting. Finding the balance between the cost of
borrowing and returns on investment is an important goal of Capital Budgeting.

Capital Budgeting Process

The process of capital budgeting is as follows:
1. Identifying investment opportunities
An organization needs to first identify an investment opportunity. An investment
opportunity can be anything from a new business line to product expansion to
purchasing a new asset. For example, a company finds two new products that they can
add to their product line.

2. Evaluating investment proposals

Once an investment opportunity has been recognized an organization needs to evaluate
its options for investment. That is to say, once it is decided that new product/products
should be added to the product line, the next step would be deciding on how to acquire
these products. There might be multiple ways of acquiring them. Some of these
products could be:

 Manufactured In-house
 Manufactured by Outsourcing manufacturing the process, or
 Purchased from the market

3. Choosing a profitable investment

Once the investment opportunities are identified and all proposals are evaluated an
organization needs to decide the most profitable investment and select it. While
selecting a particular project an organization may have to use the technique of capital
rationing to rank the projects as per returns and select the best option available. In our
example, the company here has to decide what is more profitable for them.
Manufacturing or purchasing one or both of the products or scrapping the idea of
acquiring both.

4. Capital Budgeting and Apportionment

After the project is selected an organization needs to fund this project. To fund the
project it needs to identify the sources of funds and allocate it accordingly. The
sources of these funds could be reserves, investments, loans or any other available
channel.

5. Performance Review
The last step in the process of capital budgeting is reviewing the investment. Initially,
the organization had selected a particular investment for a predicted return. So now,
they will compare the investments expected performance to the actual performance. In
our example, when the screening for the most profitable investment happened, an
expected return would have been worked out. Once the investment is made, the
products are released in the market, the profits earned from its sales should be
compared to the set expected returns. This will help in the performance review.

Capital Budgeting Techniques

To assist the organization in selecting the best investment there are various techniques
available based on the comparison of cash inflows and outflows. These techniques are:

1. Payback period method

In this technique, the entity calculates the time period required to earn the initial
investment of the project or investment. The project or investment with the shortest
duration is opted for.

2. Net Present value

The net present value is calculated by taking the difference between the present value
of cash inflows and the present value of cash outflows over a period of time. The
investment with a positive NPV will be considered. In case there are multiple projects,
the project with a higher NPV is more likely to be selected.

3. Accounting Rate of Return

In this technique, the total net income of the investment is divided by the initial or
average investment to derive at the most profitable investment.

4. Internal Rate of Return (IRR)

For NPV computation a discount rate is used. IRR is the rate at which the NPV
becomes zero. The project with higher IRR is usually selected.

5. Profitability Index
Profitability Index is the ratio of the present value of future cash flows of the project to
the initial investment required for the project. Each technique comes with inherent
advantages and disadvantages. An organization needs to use the best-suited technique
to assist it in budgeting. It can also select different techniques and compare the results
to derive at the best profitable projects.
Net Present Value (NPV) Function

The NPV function calculates the present value of a series of cash flows at equal time
intervals. The function is represented as follows:

= NPV(rate,value1,value2,…)

Here, rate is the discount rate for one period, and values are the cash flows. Any
payments are entered with a negative sign, and income is entered as positive.

Note that even though the function is named Net Present Value (NPV), it doesn‟t really
calculate the net present value. This is because it does not take into consideration the
initial investment at time 0.

To calculate the net present value, you will need to subtract the initial investment from
the result you get from the NPV function.

Lets take an example to demonstrate this function. Assume that you started a business
with an initial investment of $10,000 and received the following income for the next five
years.
To calculate the net present value, we will apply the NPV function as follows:

This is the present value of all the future cash flows.

The net present value will be:

Net Present Value = 11,338.77 – 10,000

= $1,338.77

Internal Rate of Return (IRR) Function

IRR is based on NPV. It as a special case of NPV, where the rate of return calculated is
the interest rate corresponding to a 0 (zero) net present value.

IRR function is represented as follows:

= IRR(values,guess)
This function accounts for the inflows and the outflows, including the initial investment at
time 0.

Using the same example above, the IRR calculation is shown below:

The IRR of 14.974% means that at this rate the net present value will be zero.
 weighted average cost of capital
The weighted average cost of capital (WACC) is one of the key inputs in discounted
cash flow (DCF) analysis and is frequently the topic of technical investment banking
interviews. The WACC is the rate at which a company‟s future cash flows need to be
discounted to arrive at a present value for the business. It reflects the perceived
riskiness of the cash flows. Put simply, if the value of a company equals the present
value of its future cash flows, WACC is the rate we use to discount those future cash
flows to the present.

The WACC formula

Below we present the WACC formula. To understand the intuition behind this formula
and how to arrive at these calculations, read on.

Where:

 Debt = market value of debt

 Equity = market value of equity

 rdebt = cost of debt

 requity = cost of equity
 Calculating WACC in Excel
Calculating WACC is a relatively straightforward exercise. As with most financial
modeling, the most challenging aspect is obtaining the correct data with which to plug
into the model.

The following illustration exemplifies the data needed to estimate a company's WACC:

The after-tax cost of debt may be sourced from the debt disclosures contained in a
company's filings. As mentioned, the cost of equity is calculated with CAPM. Total
capital is calculated by adding the debt to the market value of the equity.