Building Valuation Models in Excel !

Author: Joris Kersten MSc BSc RAB

Wednesday December 2nd 2020
Uden/ The Netherlands
Source blog: Using Excel for Business and Financial Modelling: A practical guide – 3rd
edition (2019). Author: Danielle Stein Fairhurst. Wiley.

Kersten Corporate Finance (KCF)

Joris Kersten (1980) buys and sells SMEs (small & medium sized companies) for his clients in
The Netherlands. And he conducts business valuations.
In addition he provides training all over the globe on business valuation and mergers &
acquisitions (M&A) at leading investment banks in New York, London and Hong Kong (“bulge
bracket”), corporates and universities.
Right now (in the middle of covid-19) Joris’ full focus in on M&As of SMEs in The
Netherlands.
Feel free to contact him when you need M&A advise in both sell side and buy side
transactions.

By the way, the new website of KCF is ready soon , this in December 2020 or January
2021.
Topic 1: Financial Modelling in Excel: Circular references, interest
calculations and iterations

Circular references: An introduction

When you are an active user of Microsoft excel you have come across “circular references”.
This basically means that within a formula, the formula is referencing to itself.
A very easy example is when a sum range in excel includes the sum itself.
When you (accidentally) do this you will find in the status bar at the bottom of excel that
there is a “circular reference”. And it also shows you where it is in your model.
Well, at least when you are on the correct “tab” in excel, you will find at the bottom in what
cell the “circular reference” sits. But when you are not on the right tab you can not see the
wrong cell.
Here for you can use the “auditing tool’’ in excel to find the circular reference.
And here fore go to: Formulas, error checking, circular references.
(Danielle Stein Fairhurst, 2019)

As a better alternative you can also use the “excel shortcut”: ALT, M, K, C. This in order to
get to the “auditing tool” very fast.
More info on how to use for example “ALT shortcuts” can be found in my previous article on
excel shortcuts and business valuation, the link is:
Excel Shortcuts & Business Valuation:
https://www.linkedin.com/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-
rab

Circular references in “Interest Calculations”

There are a few instances in which you actually like “circular references” in your financial
model in excel.
A very common reason for this is when you are calculating the interest payment in a P&L
(profit & loss statement) in your model.
The “circularity” in your model is there because of the following:
1. In your P&L you want to model interest payments, because they are an expense so they
influence the profit;
2. But how many profit you will have will eventually impact the cash a company will have.
And this has an impact on the level of funding again;
3. And “funding required” is how much debt the company has, and this has an impact on
the interest expense again.
So basically here you see the “circle” from which you cannot get out.
(Danielle Stein Fairhurst, 2019)

A practical situation where this comes back is when you build a Leveraged Buyout (LBO)
Model for your client (private equity).
Since here you build the P&Ls in excel, but you also build the debt schedule. More info on
LBO modelling can be found in my earlier blog, the link can be found below:
Leveraged Buyout (LBO) Analysis:
https://www.linkedin.com/pulse/leveraged-buyouts-lbos-joris-kersten-msc-bsc-rab/

Circular reference with the “interest expense”: How to avoid (or fix) them
When modelling P&L’s and balance sheets you can avoid circular references as follows:
1. Hardcode the interest amount, but obviously this is crazy, since it will not make your
model “dynamic” at all;
2. Calculate the interest amount based on the closing balance of debt of the previous year
(so the beginning balance of debt). This is not perfectly accurate, but used a lot, because
then at least you get rid of the circularities;
3. Maybe a more elegant way is to use “iterative calculations” in your model in excel. I will
discuss how to do this next.
(Danielle Stein Fairhurst, 2019)

Putting “iterative calculations” on

So as mentioned, an elegant way to get rid of circular references is with “putting iterations
on”.
And when doing this you can base your interest payment on “ending balances of debt”
instead of less accurate “beginning balances of debt”.
When you put on iterations, you must decide how many times the formula should
“recalculate” to find the right number (in our case the “interest expense” in relation to the
“ending balance of debt”).
When you put on iterations without changing any of the defaults, then excel stops
calculating after 100 iterations or after a change less than 0,001.
(Danielle Stein Fairhurst, 2019)

To put on iterations, you need to go to: File, options, formulas, iterations.

But please make sure you know what you are doing before you put them on.
By the way, the “excel shortcut” to get to iterations is: ALT, F, T, F (and then “jump in” with
TAB).

Topic 2: Excel basics for Finance: SUM, MAX, MIN, AVERAGE, IF, cell
referencing, named ranges

Functions in excel: An introduction

Within financial modelling the most useful functions fall into the categories:
1) logical, 2) aggregation, 3) lookup and 4) financial.
Let’s take a look at them in a little more detail:
1. Logical functions (e.g. IF, AND) are used when you need to evaluate a condition;
2. Aggregation functions (e.g. SUMIFS, COUNTIFS) are helpful when there is a lot of data
arranged either horizontally or vertically that need to be added together;
3. Lookup functions (e.g. HLOOKUP, VLOOKUP) are used when you need to look up a value
to return a single amount;
4. Financial functions (e.g. NPV, IRR, PMT) are used to calculate net present values,
interest payments or depreciation amounts.
Let’s now look in this blog at Excel’s basic functions first.
(Danielle Stein Fairhurst, 2019)

Excel shortcuts
In this sequence of blogs I will talk about how to use excel for financial modelling. And then
these models can be used for business valuation (DCF, LBOs, M&A analysis).
In today’s blog I will talk about the basics like “cell referencing” and “naming cells”. And I will
discuss some basic functions like: SUM, MAX, MIN, AVERAGE and IF.
But before I can start with these topics I need to discuss the “excel shortcuts”.
When we build models in excel we really like to use the “keyboard” and NOT the “computer
mouse”. Since this just works more efficient and it is faster! (and more fun)
So any command that is shown in the excel ribbon can be activated by clicking the icon using
the mouse. But they can also be activated with the keyboard!
Here for you need to press for example ALT first, and then a combination of letters.
Example: To get into “options” in excel, you can click “file” and then “options”.
But you can also use the following “keyboard shortcut”: ALT, F, T.
(Danielle Stein Fairhurst, 2019)

Last year, in August 2019, I have written a blog already on “excel shortcuts”.
In case you are not familiar with the "excel shortcuts" it would make sense to read it before
you continue.
You can find the blog here:
Article: Excel Shortcuts & Business Valuation:
https://www.linkedin.com/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-
rab

A little note with the "excel shortcuts":

Many of you are using a laptop, and then often you need to hold the “Fn” button to reach the
“function keys” (F1-F12) on top of your keyboard. Don’t forget this, otherwise it will not work.

Cell referencing: Relative & absolute referencing

In order to have consistent formulas across and down a block of data, you need to
understand cell referencing as a modeller.
And here for we use the “$” in excel, as you probably have seen already in many excel
models.
When there is a $-sign in front of a row number or column letter, then the row or column
does not change when you copy it. And when there is no $-sign, it will change.
The quick excel function to “dollarize” is the “F4 function”, so you press F4 (or Fn F4 at many
laptops) when you are in the cell that you want to “dollarize”.
Cell references are relative by default. This just means that when you copy the cell, it will
change.
But when you want to “anchor” the cell when copying, you need absolute referencing (with
pressing F4 in the cell).
(Danielle Stein Fairhurst, 2019)

Named ranges
In excel you can select a singe cell, or range of cells, and then give it a name. You can then
for example include them in a formula.
Naming cells is relatively easy, you just go to the name box in the upper left corner and you
just type over the cell reference. But take into account that your name can not contain any
spaces or special characters.
By clicking on the drop down arrow next to the cell name, you can find all named cells. And
clicking on the name will bring you directly to the named cell, on whatever sheet it is.
When you want to edit or delete a named range, you need to go to the formulas tab. And
then click on “name manager”.
But you better use the excel shortcut, type in: ALT, M, N.
(Danielle Stein Fairhurst, 2019)

Basic excel functions: SUM, MAX, MIN, AVERAGE

With financial modelling there are some common basic functions that are used a lot.
Thinks of the functions: SUM, MAX, MIN, COUNT and AVERAGE.
SUM
With the SUM function you can obviously sum up a series of numbers.
You can add individual cells here, but you need to separate them with commas. And you can
also specify a range of cells.
As a professional modeller, please do NOT use the mouse here either. So, you can type in
=sum( and then you select the range you want to sum.
Here fore go the first cell, then hold the shift button, and then select the whole range, and
end with “ ) “ at the end.
You can also go to the cell at the end of a series of numbers, and then use the shortcut: ALT
+ =.
This is the famous “alt equals” that is used a lot.
Actually it is “alt equals enter”.

And when you are an excel super nerd , you use ALT + = + =.
So “alt equals equals”, and this way you do not need to press enter, which saves a micro
second.
MAX
With this function you can identify a maximum value.
And here you can also enter a range of cells, individual cells separated with commas, or a
combination of both.
MIN
This function is the opposite of the MAX function, so it gives the lowest value in the list.
Here you can also use a range, individual cells separated with commas, or a combination of
both.
AVERAGE
As the name suggests, this function calculates the average of the numbers in the list.
Here you need to be careful that only numbers in the list are taken up.
In other words, only cells with values inside are used to calculate the average. So it will
ignore empty cells.
And the MAX and MIN functions do return a “0” on empty cells, be careful with that.
(Danielle Stein Fairhurst, 2019)

Logical functions: IF
The IF statement requires three fields in the formula:
1. The evaluation of the logical expression;
2. The result if (1) is true;
3. The result is (1) is false.
So the formula will look like this:
=IF(statement that is tested, value if true, value if false)
So the first field consists out of a logical expression. This is something that is either true or
false when evaluated.
When it is true, then the if statement returns the value of the second field. And when it is
false, then the if statement returns the value of the third field.
With this formula you can use the “insert function dialog box” to set up the formula. This
tool just helps you to build the formula.
And for this, click the "fx symbol" just left of the formula bar.
But the easiest way is to use the excel shortcut: Control + A (just after you have started the if
function).
(Danielle Stein Fairhurst, 2019)

Topic 3: Excel for Valuation: COUNTIF, VLOOKUP, INDEX and MATCH

Functions in excel: An introduction

Within financial modelling the most useful functions fall into the categories:
1) logical, 2) aggregation, 3) lookup and 4) financial.
In my previous blog on financial modelling I have talked about basic excel functions and the
logical function “IF”.
In this blog I will talk about the aggregation functions (COUNTIF and SUMIF) and the lookup
functions (VLOOKUP, HLOOKUP, INDEX and MATCH).
See a little overview below. The topics of today are underlined.
And we will work with “excel shortcuts” here. In case you are not familiar with them, please
read my previous blog on: Excel Shortcuts & Business Valuation.
1. Logical functions (e.g. IF, AND) are used when you need to evaluate a condition;
2. Aggregation functions (e.g. SUMIFS, COUNTIFS) are helpful when there is a lot of data
arranged either horizontally or vertically that need to be added together;
3. Lookup functions (e.g. HLOOKUP, VLOOKUP) are used when you need to look up a value
to return a single amount;
4. Financial functions (e.g. NPV, IRR, PMT) are used to calculate net present values,
interest payments or depreciation amounts.
(Danielle Stein Fairhurst, 2019)

Aggregation function: COUNTIF

The function COUNTIF is used to count the cells in excel that match a certain criteria.
For example, you have sold different kind of products on a certain day. And you like to know
how many products you have sold of a certain product category.
For this, what is you do is:
Simply begin with typing: =COUNTIF(
Then press “Control + A” because this is the shortcut to get into the “formula creator” (insert
function dialog box).
You can also click the fx symbol for this next to (left of) the formula bar, but this is more slow
than the mentioned shortcut.
In this formula you need to give in the range of cells that you want to consider.
Please note, with F2 you get outside the dialog box to select the range. This is better (faster)
than using the computer mouse. You can select the range with holding the "shift" button to
"shade" an area.
And then for the “criteria” you fill in what you want to “count”. In this case the certain
product category. And here you link to a cell in which you have typed in a certain product
category.
In the end, this will give you the numbers of sales in a certain product category. So sales
number is only counted if it falls in a certain product category.
(Danielle Stein Fairhurst, 2019)

Aggregation function: SUMIF

When I continue with the above, in business we want to know, not only the numbers that
we have sold, but also the amount of turnover per product category. This as an example.
Here we use a SUMIF function. And basically this function “sums” rather than “counts” the
values of cells. And this in a given range of cells that meet a certain criteria.
To do this, type in: SUMIF(
Then use the shortcut “control + A” to create the formula in the “dialog box”.
And there you need to give in the range with for example “product types” sold.
And you need to give in the criteria, in this case the product type that you are looking for.
And then you need to give in the sum range, in this case the turnovers.
In the end, you will know how many products where sold per product category (countif), and
we will also know what the turnover was per product category (sumif)!
(Danielle Stein Fairhurst, 2019)
Lookup function: VLOOKUP and HLOOKUP
Lookup functions are still used a lot in financial modelling.
They are useful to know, but other functions like INDEX/ MATCH create more robust
solutions.
So let’s first look at VLOOKUP.
VLOOKUP stands for “vertical lookup” and it can be used when you have a list of data with
the key field in the leftmost column.
So you “lookup” in the (vertical) left column.
Let’s say you have a vertical list with some fruits and the prices of the fruits in the column
next to it.
Now start a VLOOKUP function with typing in: =VLOOKUP( in a cell.
Then type control + A to get set up the formula (in the so called dialog box).
In the vlookup dialog box (criteria: "lookup value"), link to a cell in which you have typed in
one of the fruits of the list.
Recall that you can use F2 to get outside the dialog box in order to select the cell. This way
you do not need to use the computer mouse and you can stick to you keyboard which is
faster!
And in the total array just select all the cells with fruits and prices. Or you could use a
“named range” here, a topic I have discussed in my previous blog.
When you have created a “named range” and when you can not recall the name, then just
select F3 to bring up all the named ranges in the model.
When you eventually get to “Col_index_num”, here you need to give in, in what column
excel needs to find the value. For example “column 2” price (when the first column gives the
fruit names).
And in the 4th parameter/ box you want to give in “zero” when you want an exact match
(most used).
So in this very simple VLOOKUP, excel will give you a certain price that is matched to a
certain input, in this case fruit names.
(Danielle Stein Fairhurst, 2019)

VLOOKUP and HLOOKUP continued

When you have created a VLOOKUP function as above, then it will break when somebody
adds or deletes a column.
This because it “returns” (gives) a value from a specific column, in this case the 2nd column,
as mentioned.
This because at the parameter “Col_index_num” you give in, in what column excel needs to
find the value. For example “column 2” price (when the first column gives the fruit names).
So this formula is not very robust when you add a column (accidentally). But you can make it
more robust with making the number “2” in the parameter “Col_index_num” actually
“dynamic”.
You can do this with a so called MATCH function. This way the number 2, which implies the
2nd column, will change when more columns are added, so your formula then becomes
dynamic!
I will discuss how a MATCH function works later in this blog.
At last, a HLOOKUP, so a horizontal lookup, works exactly the same way as a VLOOKUP. Only
the data needs to be arranged horizontally instead of vertically.
(Danielle Stein Fairhurst, 2019)

Index and Match: Introduction

Robust formulas like a nested formula with a combination of INDEX and a MATCH, used with
“named ranges” are less likely to break and cause problems in models.
Let’s look at how we can use INDEX and MATCH to create more robust formulas.
Just imagine that in your financial model you are referencing to another file. And your
colleague keeps adding and deleting rows and columns.
The VLOOKUP function (improved with “MATCH”) may work. But with large tables and
INDEX and MATCH formula combination will be more efficient.
Let’s assume you need an input from an external excel file with horizontally (in the upper
row) “manufacturing plants” in different cities. And vertically (in the left column) the
different costs/ expenses of those plants.
You can simply link to for example the cell that gives the “labour costs” in the “plant in
Amsterdam”, when you need this input to your model.
But when your colleague, for example, adds a column or row in the table to which you link,
then you go wrong in you model!
By using a combination of an INDEX and MATCH formula, the exact location of a required cell
will be picked up, even if its cell-position in the table changes.
(Danielle Stein Fairhurst, 2019)
Index and Match: Continued
For this we need to create a MATCH function in an empty cell first. This way you lock the
column of the specific cell you need.
Secondly, you need to create a second MATCH function in an empty cell. And this in order to
also lock the row of the specific cell you need.
Now the basis is made in order to make you model “dynamic”. So now it sort of “follows”
the cell you want to pick up as an input for your model.
Now create an INDEX formula that will return the value that you specify.
When typing =INDEX( and then control + A for the insert function dialog box, it will ask you
which ‘argument list’ you wish to use. Select the first one.
For the “array” select the whole table. And then “hardcode” the “row number” and “column
number”.
Now the function works, but we do not like the “hardcodes” in the formula.
So here we want to enter the MATCH functions 1 and 2, as mentioned above.
So now these MATCH function are “nested in” the INDEX function. And your model will be
dynamic.
As mentioned, we use the first and second MATCH function created above. Just cut and
paste the formulas without the “=”, and now you are done!
(Danielle Stein Fairhurst, 2019)

Topic 4: Excel for Business Valuation: OFFSET, FORECAST and

CHOOSE

Function OFFSET
The function OFFSET is used to return the address of a cell (or a range of cells) through the
use of a reference cell.
And it is in general used to “offset” a series of values by a variable amount.
For example, if you want to delay a project by a certain number of months, and you want
these months to be “dynamic”, then you can use the “offset” function.
This in order to move the (project) value by the number of months that you give in.
I will give a more detailed, and practical, example for financial modelling for “business
valuation” later on. But let’s first take a look at how we build the function (technically) in
Microsoft excel.
And please try to model here with the “excel shortcuts”, and try NOT to use the mouse since
this works less fast.
In case you are not familiar with the “excel shortcuts” then please check my earlier blog on
excel shortcuts for business valuation.
And for my Dutch colleagues, please make sure your excel is put in the “English language” in
order for the “shortcuts” to work. Article: Excel Shortcuts & Business Valuation:
https://www.linkedin.com/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-
rab

When using OFFSET, act as follows:

Go to a cell and type in =off and then you should see “offset” and press TAB to get into the
function.
After that you can type the shortcut ‘Ctrl, A’ to be able to type in the “function arguments”.
What you also can do is to go to a cell and then click on the ‘fx’ button. This to open the
‘insert function dialog box’ in order to find the OFFSET function.
Or better, use the shortcut ‘shift, F3’ in order to get here. And do not forget to use the ‘fn’
button with certain laptops. So with many laptop you have to press ‘fn’ as well to use F1
until F12.
When you are in the offset function, then you need to fill in a ‘reference point’ cell, so this is
the basis of the function (in the example above, the number of months).
When you are in the function, and when you want to give in the ‘reference point’ you can
simply click the cell. But better is to use the keyboard since it is faster.
You can use the keyboard by pressing F2 to be able to select the cell. So with F2 you “jump
out” the function box in order to be able to select the cell with the keyboard.
Then you give the “offset rows” (number of cells below reference point) and “offset
columns” (number of cells besides reference point).
And height and width will be left blanc, because this is used when you want the result to be
a range of cells instead of a single cell.
(Danielle Stein Fairhurst, 2019)
Function OFFSET: In valuation
So a practical situation in which we can use an offset function is when we model a cash flow.
As we know in most B2B companies we first have sales (revenue recognition), and then the
cash comes in later, in for example 1 or 2 months.
We can then simply use an offset function with as reference point a (dynamic) cell. In this
cell we type in for example the number of months we expect the clients to pay on average.
And then it tells us how many months, after the actual sales took place, the cash in coming
in.
The only funny thing here is that when we copy the formula we can get funny messages in
the cash boxed in the first month.
Basically since then there is sales, but no cash yet, and it can then copy inputs of the text
boxes there (e.g. text “revenue” or “sales” or “turnover”).
So what we do here is to create a “nested offset formula”.
I have discussed “nesting” in the previous blog in this sequence. And with "nesting" we
basically add functions into the formula to solve specific issues.
Here we only want excel to give numbers (for cash) and otherwise “zero”. So here we build
in an “IF function” and an “ISNUMBER function” in order to let excel give back only numbers!
Problem solved.
(Danielle Stein Fairhurst, 2019)

Function FORECAST
When you highlight a range of cells in a column or row, and then drag it down, then excel
will use ‘linear regression’ to forecast what the expected outcomes will be.
This is very quick and handy, but not a very good modelling habit. Because for example your
colleague cannot see where the numbers come from.
So you better use a forecast function here. The function predicts the forecast data based on
the historical data using a linear trend.
What you need to do is:
Type in =fore and then look for ‘forecast’ and then TAB to choose the function.
Then use shortcut ctrl A to get into the function.
For X you give in the cell of the date for which you want to know the forecast.
Remember to use F2 to get outside the function box in order to select the cell.
And then for “known y’s” you give in the range of historical data. Do not forget to F4
(“dollarize”) them for better results.
And then for “known x’s” you give in the corresponding years for the numbers you know
already (also “dollarize” range).
And then you get the forecast!
And maybe you want to copy this formula down with a shortcut: Use shift to shadow down
the cells, and “ctrl, D” to “copy down”.
What also is handy is to create a basic “line chart” with clicking “insert” and then the line
chart. (or better use shortcut: ALT, N, N1).
And then right click on the the graph and select “add trendline”, and you will get a graphical
view of the numbers calculated above straight away.
(Danielle Stein Fairhurst, 2019)

Function CHOOSE
The choose function returns a value from a list of values based on a certain position.
For example it can take the 5th day from a list of week days.
And the function obviously works from =CHOOSE and then you need to give in the index
number (this is the certain position) and then the different values, for example the
weekdays.
For us people working in finance, accounting and valuation, this tool is very handy to build in
"scenarios" in your valuation models like:
· Discounted cash flow valuation model;
· Leveraged buyout model;
· M&A model (buy side).
This since it helps us to "choose" multiple scenarios in our models, and with the "choose
function" we can switch scenario very easily.
(Danielle Stein Fairhurst, 2019)
Topic 5: Excel for Business Valuation: NPV, IRR, PMT and EOMONTH

Working with dates

Working with dates in excel is always an issue and you need to be careful and consistent.
A very handy function in excel concerning dates is EOMONTH. The function gives you the last
day of the month with reference to any date.
In excel you go to a cell and type is =eo and then with TAB you jump into the function.
Then use shortcut ctrl A to be able to enter the “function arguments”.
Do not forget to use the keyboard here and no mouse since the latter is inefficient. Check
out the excel shortcuts in the older blog below when you are not familiar with them.
And for my Dutch colleagues, do not forget to put your excel in English, otherwise they do
not work.
Article: Excel Shortcuts & Business Valuation:
https://www.linkedin.com/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-
rab

When you are in the box of “function arguments” then just press F2 (and “Fn” as well with
certain laptops) to jump out of the box and to be able to select cells.
With “start date” select the cell with the start date inside. And with “months” select how
many months later you want to have the date (last date of the month).
And obviously you can copy this formula to the right. This with shortcut ctrl R (copy right),
and before the copying you need to “shade” the area for copying with holding “shift”.
EOMONTH also logically takes “leap years” into account.
(Danielle Stein Fairhurst, 2019)

Working with dates: Continued

Another very handy function is for example the month function. This function returns the
month number of a specific date.
So it gives the month number in which a certain date falls.
You can use this info for example for summarising raw data. Think for example of sales you
get on many dates.
With typing in =MONTH and then select a certain date, the function will give you the month
number.
And in a practical situation you can then use a SUMIF function (see precious blog) to sum the
sales for every month. And this can then be nicely shown in a graph.
By the way, when you have a certain date given, with shortcut ALT, H, N, and then press
“down”, you can select “short date” and “long date”, depending on how you like to show the
dates in your tab!
(Danielle Stein Fairhurst, 2019)

Net present value (NPV)

NPV is the value of the expected future cash flows of an investment calculated to today in
for example euros.
And we discount these cash flows back with a “discount rate”, and this is often the WACC
(weighted cost of capital). Check out my previous blogs on WACC since I have written many
blogs on this topic.
In excel we can build the NPV formulas manually, but we can also use the build in function.
The latter can be done as follows:
Type in =NPV tab, and then go with ctrl A to the box with function arguments. And here you
“jump out” with F2 (with Fn for certain laptops) and select the cell with inside the WACC.
And then for “value1” select the range of which you want to have the NVP. Again, jump out
with F2 and then select the range with holding shift.

And there it is!

(Danielle Stein Fairhurst, 2019)

Internal rate of return (IRR)

The IRR is the return of a project or investment which gives a NPV of zero.
With financial sponsors, so private equity parties, this IRR is very important. Since with a LBO
model (leveraged buyout) we want to know the IRR (in combination with the credit
statistics) of an acquisition.
To calculate the IRR of a range of cash flows, act as follows:
Type in =IRR tab, and then ctrl A to get into the “function arguments”. Then jump out with
F2 and select the range of cash flow with holding shift.
And we leave the box “guess” blanc for now. I will get back to this later in this sequence of
blogs.
And then the IRR is calculated. Once you start to know these formulas, you can type them in
straight away without using the “function arguments”.
(Danielle Stein Fairhurst, 2019)

Loan calculations
The most common form of calculating loan repayments is to use an “amortisation schedule”.
Within this method regular (fixed) repayments of equal value are made over the term of the
loan. And inside sits an interest component and a principal component.
To calculate the payment of both interest and principal use the PMT (payment) function in
excel.
The formula is:
Repayment = loan amount * interest * (1 + interest)^N / (1 + interest)^N – 1)
You can do this on a calculator in order to check it, but excel does this very fast with the PMT
function.
And here you need to give in rate (interest), number of repayments and principal amount.
So this is the total amount of principal and interest.
And with I-PMT (interest payment) and P-PMT (principal payment) you can also calculate the
separate amounts for interest and principal.
With this amortised schedule, in the end interest is getting less and less since you are paying
down the debt (less debt is less interest).
And then the rest of the “fixed/ regular payment” is seen as paying back principal, so this
amount is then by definition going up yearly (because of declining interest).
(Danielle Stein Fairhurst, 2019)

Topic 6: Excel for Business Valuation: Custom Formatting,

Conditional Formatting and Sparklines

Formatting: An introduction
Good formatting is very important in order to build a good and clear financial model for
business valuation.
In the current version of Excel all the “formatting options” are already available in the “home
tab” of excel.
And with the “shortcut” ALT – H – N you can change the “number format” on any cell.
This from the “number ribbon” in the “home tab” of excel.
Before I continue please also make yourself familiar with the other basic “keyboard
shortcuts” in excel. This since that just works a lot more easy than using the computer
mouse.
You can find the shortcuts in my previous article below, and next I will start with “custom
formatting”.
And do not forget to put you excel in “English”, otherwise the shortcuts will not (all) work.
· Excel Shortcuts & Business Valuation:
https://www.linkedin.com/pulse/excel-shortcuts-business-valuation-joris-kersten-msc-bsc-
rab

Custom formatting
The function =NOW() in excel gets the current date and time in a specific cell.
And by default; depending on your set region and location (in control panel), then is
displayed dd/mm/yyyy hh:mm.
When you then go to the cell and press the shortcut “Ctrl + 1” you get into “format cells”.
Then with pressing tab you can put the cell on category “date”.
And then with one more tab you can pick the date format you like.
In addition, in the category “custom” you can also just type over the standard format in
order to create a “customised format” yourself when you want to.
And excel will just remember these customised formats that you have made yourself.
(Source used: Danielle Stein Fairhurst, 2019)

Custom formatting: Continued

When you type in a number in excel in default it will jump into the “general format”.
And then again with shortcut “Ctrl +1” you get in to “format cells”. And here you can put the
cell (or selected cells) in a “currency format” (e.g. dollar, euro, yen etc.) with using the tab
button.
Here you can use all kinds of different currency symbols in the category “currency”.
And even when there is a currency that you excel does not recognise, you can then add it in
category “custom”.
As with date & time, excel will remember this "customised format" under “custom”.
(Source used: Danielle Stein Fairhurst, 2019)

Conditional formatting
Conditional formatting is a tool that enables you to apply formats to a cell or a range of cells.
And here the formatting changes depending on the value of the cell or the value of a
formula.
The shortcut to reach conditional formatting is: ALT – H – L.
So for example you can you use: ALT – H – L – H – B.
This means that you use the function “highlight cells rules” and “between” of conditional
formatting.
This basically means that with this tool excel marks numbers (for example) “red” of a range
you selected before when they meet a certain condition.
So for example when the numbers are ‘between’ 3 and 8.
To remove this conditional format, use ALT – H – L – R. And to change the conditions for
"marking red" you can also use this shortcut.
(Source used: Danielle Stein Fairhurst, 2019)

Conditional formatting: Continued

In addition, with shortcut ALT – H – L – D you get to “data bars” in conditional formatting.
This is very handy tool that you can use for any numerical data in excel.
This since these bars graphically show (in the cell) the relative size of each value (of the
range you selected before).
Also “icon sets” and “colour scales” are very handy.
With “icon sets” (ALT – H – L – I) you can conditionally show a small icon that represents
changes in data.
Under “manage rules” (ALT – H – L – R) you can modify the “conditions” you want to have
for the representation of the specific icons.
And with “colour scales” (ALT – H – L – S) you can assign rules for data in a table in order to
give cells a specific colour.
This way you can for example quickly assess what is good or bad.
Again under “manage rules” (ALT - H - L - R) you can set the conditions for a cell value to
appear in a certain colour.
(Source used: Danielle Stein Fairhurst, 2019)

Sparklines
At last, “sparklines” are funny little graphs within cells in order to give more meaning to the
numbers.
In order to use them, select the data first for which you want a “sparkline”. For this 'selecting
task' you hold “shift” and then with the keyboard select your range.
Then use shortcut: ALT – N – SL.
And then select (with your keyboard again) the cell in which you want the “sparkline”, then
“enter”, and here is your handy little graph!
To edit the “sparkline” select the cell, and then use shortcut ALT – JD to edit the little graph.
(Source used: Danielle Stein Fairhurst, 2019)

Source blog: Using Excel for Business and Financial Modelling: A

practical guide – 3rd edition (2019). Author: Danielle Stein
Fairhurst. Wiley.
6-day training “Business Valuation & Deal Structuring”
Face to face training.
Registration at www.joriskersten.nl or email [email protected]
➢ 6 days - Business Valuation & Deal Structuring.
➢ 7, 8, 9, 10 and 12, 13 April 2021.
➢ Location: Hotel Van De Valk Uden/ The Netherlands.
➢ Price 3900 euro ex vat.
➢ AND ONLY 2900 euro ex vat when you book before March 1st 2021 (early bird
discount).
This is a practical 6-day training in “Business Valuation & Deal Structuring” (Investment
Banking M&A) and the main topics are: valuation, leveraged buyouts (LBO’s) and mergers &
acquisitions (M&A’s).
The training mainly focusses on giving the participant hands on tools to build financial
models in excel to determine the value of a company on 1) a stand-alone basis, 2) in a LBO
situation and 3) in a buy-side M&A scenario.
In the training we will look at different valuation techniques to calculate “enterprise value”
like: 1) Comparable companies analysis, 2) Precedent transaction analysis, 3) Discounted
cash flow analysis (DCF), 4) LBO analysis and 5) Buy-side M&A analysis.
And we will look at different techniques to get from “enterprise value” to the “value of the
shares” taking (adjusted) net debt into account.
The training is very practical in a sense that the trainer will explain the concepts first and will
then apply them in class to real life companies with the participants. With all the calculations
“Microsoft excel” is used to build the needed financial models.
This training is meant for analysts and associates from international investment banks.
Moreover, the training is meant for analysts and consultants in: M&A, private equity,
venture capital and strategy. In addition, the training is meant for accountants, tax lawyers,
bankers in credit analysis, financial managers, CFO’s etc.
During the training will be focussed on international companies listed on the stock exchange.
But the valuation techniques are also applicable to (non-listed) private firms.
For any more questions on this training feel free to contact by email: [email protected] and/
or by phone: +31 6 8364 0527 (time zone: Amsterdam).
Indepdendent M&A Consultant & Trainer
J.J.P. (Joris) Kersten, MSc BSc RAB

• 130 recommendations on his training can be found on:

https://www.joriskersten.nl/nl/reviews
• Many articles & blogs of Joris on “Business Valuation” & the “Cost of Capital” can be
found on: www.joriskersten.nl
J.J.P. (Joris) Kersten MSc BSc RAB (1980) is owner of “Kersten Corporate Finance” in The
Netherlands, under which he works as an independent consultant in Mergers & Acquisitions
(M&A’s) of medium sized companies.
Joris performs business valuations, prepares pitch books, searches and selects candidate
buyers and/ or sellers, organises financing for takeovers and negotiates M&A transactions in
a LOI and later in a share purchase agreement (in cooperation with (tax) lawyers).
Moreover, Joris is associated to ‘AMT Training London’ for which he provides training in
Corporate Finance & Financial Modelling at leading (“bulge bracket”) investment banks in
New York, London and Hong Kong.
And Joris is associated to the ‘Leoron Institute Dubai’ for which he provides finance training
at leading investment banks and institutions in the Arab States of the Gulf. This for example
at Al Jazira Capital in Saudi Arabia and TAQA in Saudi Arabia.
In addition, Joris provides lecturing in Corporate Finance & Accounting at leading
Universities like: Nyenrode University Breukelen, TIAS Business School Utrecht, the
Maastricht School of Management (MSM), the Luxembourg School of Business and SP Jain
School of Global Management in Sydney.
Moreover, he provides lecturing at partner Universities of MSM in: Peru, Surinam, Mongolia
and Kuwait. And at partner Universities of SP Jain in Dubai, Mumbai and Singapore.
Joris graduated in MSc Strategic Management and BSc Business Studies, both from Tilburg
University. In addition, he is (cum laude) graduated as “Registered Advisor Business
Acquisitions” (RAB), a 1-year study in the legal and tax aspects of M&A’s. And Joris obtained
a degree in “didactic skills” (Basic Qualification Education) in order to lecture at Universities.
Currently Joris is following the “Executive Master of Business Valuation” to obtain his title as
“Registered Valuator” (RV) given out by the “Netherlands Institute for Registered Valuators”
(NIRV). This title will enable Joris to give out business valuation judgements in for example
court cases.
J.J.P. (Joris) Kersten, MSc BSc RAB.
Kersten Corporate Finance
www.joriskersten.nl
www.kerstencf.nl

➢ Consulting in M&A and Valuation

➢ Training in Valuation and Financial Modelling
➢ Address: Gording 67 – 5406 CN Uden – The Netherlands
➢ [email protected] / +31 (0)6 8364 0527
Job vacancies @ Kersten CF
Kersten Corporate Finance (KCF) is a boutique style corporate finance consulting firm
founded by Joris Kersten (1980) five years ago in 2015.
The office of KCF is located in Uden, a middle sized town in The Netherlands. This at about
30 minutes by car east from city Den Bosch and 30 minutes north of city Eindhoven.
Accidently founder Joris was asked to provide training in Business Valuation, Financial
Modelling and Mergers & Acquisitions in The Netherlands at banks and financial institutions.
But soon (due to social media/ linkedin) Joris was providing training in Corporate Finance all
over the world.
This at the biggest (“bulge bracket”) investment banks in New York, London, Hong Kong and
the Middle East. And also at Universities over the globe, for example in Peru/ Lima,
Mongolia/ Ulaanbaatar, Surinam/ Paramaribo, Kuwait/ Kuwait City etc. etc.
Now due to Covid-19 flying/ travelling came to a stop, so KCF decided to move back to its
core business: Consulting/ deal making in M&As. This for SMEs (small & medium sized
enterprises) in The Netherlands.
Activities KCF:
o Buy side M&A consulting of SMEs in The Netherlands;
o Sell side M&A consulting of SMEs in The Netherlands;
o Business Valuations in The Netherlands/ Globally;
o Financial Modelling in The Netherlands/ Globally;
o Attracting financing (banks loans/ private equity) in The Netherlands;
o Providing a 6 day valuation training 2 times a year in The Netherlands. During spring
at town: Uden and during Autumn at Amsterdam South (Zuidas).

1 or 2 Corporate Finance analysts needed

Note: Analyst needs to be fluent in Dutch with both speaking and writing (this on top of
English). KCF works mainly for Dutch clients with annual reports and documents in the Dutch
language which makes being fluent in Dutch an absolute must!
For increased work in M&A consulting KCF is looking for 1 or 2 Corporate Finance analysts.
Their work will consist out of:
o Conducting business valuations in Microsoft excel for SMEs in The Netherlands. Think
of valuation with “multiples”, discounted cash flow valuation (DCF) and leveraged
buyout analysis (valuation with check on internal rate of return (IRR) with certain
financing structure);
 o Writing “information memoranda” for sell-side M&A projects;
o Searching and selecting candidate buyers (e.g. strategic parties, private equity parties
etc.);
o Searching and selecting candidate sellers (target M&A companies);
o Providing (helping with) corporate finance input to Letters of Intent (LOIs);
o Providing (helping with) corporate finance input to Share Purchase Agreements
(SPAs);
o Providing (helping with) corporate finance input for fiscal issues (tax issues in M&A);
o Coordinating (helping with coordinating) due diligence.

Characteristics of the Corporate Finance analyst

For this job you need to possess or have the following characteristics:
o A Master of Science (MSc) degree in Finance or Accounting;
o 0 to 3 years working experience in Corporate Finance. So you either come straight
from University with a master in Finance/ Accounting, or you have a few years
working experience in Corporate Finance;
o A past internship in M&A at an Investment Bank, M&A boutique or Corporate
Finance department of an Accounting firm or corporate is a pre;
o Extra-curricular activities conducted within the field of M&A and/ or Corporate
Finance is a pre;
o Financial Modelling skills in excel is a pre. But a basic understanding of Microsoft
Excel is enough (you will learn financial modelling with keyboard excel shortcuts on
the job);
o Skills to build presentations in power point is a pre. But a basic understanding of
building presentations is enough (you will learn these skills on the job);
o Excellent writing skills in both Dutch and English;
o Excellent speaking skills in both Dutch and English;
o Living within 45 minutes from town Uden (office location KCF) is an absolute must
since M&A is still “people business”. So you need to be able to attend at face to face
meetings in Uden very regularly (e.g. negotiations, client meetings, discussing deal
structures with colleagues etc.).
What you will get:
o With this job you will start off with a free 6 day valuation training of KCF to learn
advanced modelling and valuation skills for the job (training takes place in Spring or
Autumn);
o Market based salary;
o Bonus based salary based on M&A deal flow;
o Ability to grow in this relatively young and very ambitious M&A boutique;
o Working in a team with high class Investment Banking valuation techniques with
focus on SMEs in The Netherlands;
o Working in a highly entrepreneurial team and possibilities to grow up to ‘partner’
when you work hard and show right characteristics (e.g. analytical skills,
communication skills, networking skills, entrepreneurial mindset).
Process:
Please write your motivation letter to: [email protected]. Please just type your motivation in
the email itself, so no attachments.
And please provide the link to your LinkedIn profile, so please no curriculum vitae in
attachment, but just link to your LinkedIn page.
Suitable candidates will be contacted in October/ November 2020.
And the first acquaintance meeting will take place in December 2020. This face to face at the
office of KCF in Uden/ The Netherlands.
Second meeting will take place in January 2021. This face to face at the office of KCF in
Uden/ The Netherlands. And potentially a third meeting will take place in February 2021.
Starting date job: Quarter 2 of 2021.

Office KCF at Uden/ The Netherlands.