Excel – Quick Reference Guide

Custom Number Formats and Key Use Cases in Finance

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Custom Number Formats: Best Practices in Financial Models

Custom number formats are one of the most powerful tools in Excel. They are much more relevant
with financial models than with data analysis and due diligence, but they can be useful with both.

There’s a lesson on the site dedicated to custom number formats, so this guide sums up everything
there with text and screenshots for your reference later on.

How Do You Use Custom Number Formats?

The two most common use cases in finance, by far, are for valuation multiples and for different
number styles for positives vs. negatives and percentages.

We’ll go into the “bells and whistles” of custom number formats below, but if you understand how to
use them for these two cases above, you’ll be in good shape.

Use Case #1 – Valuation Multiples:

You calculate valuation multiples – Enterprise Value / EBITDA, Enterprise Value / Revenue, P / E,
and so on – all the time when valuing companies and creating financial models.

Rather than displaying these numbers as “11.1” or “5.7,” you should make them look like what
appears in these examples below:
 Excel – Quick Reference Guide
Custom Number Formats and Key Use Cases in Finance

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This format makes it much easier to read and interpret valuation data. Here’s what the required
custom number format looks like (go to Ctrl + 1 on the PC or Cmd + 1 on the Mac and then Number
 Custom to access this dialog):

If you did not have that “0” before the decimal place, this multiple would show up as “.6 x” rather
than “0.6 x”. You should always use the style above or a close variation for valuation multiples.

Use Case #2 – Changing Styles for Positive vs. Negative Values and Percentages:

It also helps to display positive numbers in black or blue and negative numbers in red – although
many people will still use blue or black for negatives to be consistent with the color coding rules.

Used sparingly, though, reds for negatives (especially negative percentages) can make it easier to
scan models for errors and problematic cells. Here’s an example of a simple custom format you can
use for percentages in models:

The way it works: That semicolon tells Excel, “The part right before the semicolon is for positive
numbers and the part right after it is for negative numbers.” The two 0’s and the decimal points
 Excel – Quick Reference Guide
Custom Number Formats and Key Use Cases in Finance

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“force” Excel to always show at least one place before and after the decimal, and the “%”simply
displays the normal percentage sign.

The parentheses around the negative format force parentheses to appear around any negative
percentages, and the “_” character in the positive format forces an extra space between the
percentage sign and the end of the cell.

That ensures that positives and negatives are always properly aligned – without that, negative
percentages would always have an extra character at the end for the parentheses, and would
therefore not line up properly with positive percentages.

Use Case #3 – Axes and Data Labels on Graphs and Charts:

When you create a chart, small numbers and percentages generally show up correctly because Excel
is fairly good at detecting and formatting those.

It is not so good with large numbers that need to be “scaled down” for easier reading.

On the right, you can see an example of a chart

gone wrong:

The chart is far too crowded when you display 3

places after the comma, since the square feet are
in the hundreds of thousands.

You could fix this by dividing the source data by

1,000, but that’s not ideal and it’s much cleaner
to scale down the numbers directly within the
chart (generally, you want to leave source data
intact whenever possible and modify it elsewhere – with scaling, currency conversions, and so on).

Do this by right clicking the axis and data labels and going to “Format Axis” or “Format Data Series”
or simply click either of them and press Ctrl + 1 on the PC or Cmd + 1 on the Mac to access the same
menu.

Here’s the “fixed” chart and the custom number format we will use to accomplish this:
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Custom Number Formats and Key Use Cases in Finance

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The way it works: With custom number formats, a comma character

after a “0” divides numbers by 1,000. So by entering “0,” we’re telling
Excel: “Even if there’s nothing there, please display a 0 – at least one
place – and then divide the whole number by 1,000 and display that.
Then, add a space and put a “K” at the end for the ‘thousand’
abbreviation.”

In the same way, entering “0,,” for the custom number format would
divide the number by 1,000 * 1,000, or 1 million.

Words of Wisdom and Caution with Custom Number Formats

While custom number formats can be very powerful, you should not go overboard with them.

There are very few cases in finance when you actually want to use a complex custom number format
with several different conditions, colors, scaling, and so on – simple formats tend to be far more
useful and effective.

Also, do not make the mistake of replicating a built-in number format with a custom one that you
create (the wheel only needed to be invented once).

Excel already offers dozens of built-in formats and you should only create a new one if it’s absolutely
necessary (this is most often the case when you’re displaying different units after numbers, e.g.
Barrels of Oil for oil & gas companies, which is abbreviated as “Bbl”).
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Custom Number Formats and Key Use Cases in Finance

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How Custom Number Formats Work – The Syntax and a Simple Example

Here’s the general “syntax” in Excel for creating custom number formats:

Example Data: Displayed As: Used For:

5 5.0x Valuation Multiples
-1200 (1,200.00) Negative Expenses
0 Balanced! Balance Sheet Checks
Wal-Mart Model – Wal-Mart Titles & Headers

Text on the Left: [Blue]0.0 x;[Red](#,##0.00);"Balanced!";"Model - "@

1. The order for Custom Number Formats is: [Positive Style];

[Negative Style]; [Zero Style]; [Text Style]
2. If you include the “@” symbol and text, the text will appear
and the “@” will be replaced by what’s in the cell.
3. [Red] and [Blue] (and other colors) can be used for color
coding.

This is important because you will always follow this order – positive, negative, zero, and text –
when using custom number formats in Excel… unless you use conditionals (see the next few sections)
and reset these default conditions.

As you’ve already seen, you can use colors in brackets such as [Red] and [Blue] to change the color in
each different section of the order above.

You mostly use that to format negatives differently from positives, but sometimes you also see it
when a number becomes “too high,” e.g. a P / E or EV / EBITDA multiple above 100x that you want
to draw attention to in a model.

How to Use Numerical Characters

There are so many options with numbers that we can’t hope to cover everything related to custom
number formats here, but we will go over the most important points.

Here are the numerical characters available to you with custom number formats, followed by
examples of what they do:
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Here are a few examples of how you might use custom formats in Excel and how they change the
numbers you enter (it is easiest to understand these characters by studying the examples):
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Notice how we can fix not only the decimal places, but also how we can fix alignment using the “_”
character.

Also notice how the comma character works differently depending on whether it’s preceded by a “#”
or “0” character – you need to use “0” in front of any decimal places for scaling to work correctly.

Using Date and Time Characters

Here is what each date and time character would display if you entered it in the Custom Number
dialog box and then applied it to the date “Monday, March 4, 2013” with a time of “4:05:07 PM”:

Character How it Displays the Date and Time

d 4
dd 04
ddd Mon
dddd Monday
m 3
mm 03
mmm Mar
mmmm March
mmmmm M
yy 13
yyyy 2013
h 4
hh 04
[h] / [hh] N/A – Cumulative hours between dates
m 5
mm 05
[m] / [mm] N/A – Cumulative minutes between dates
s 7
ss 07
[s] / [ss] N/A – Cumulative minutes between dates
am / pm N/A
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Custom Number Formats and Key Use Cases in Finance

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Conditional Number Formats

Many people are not aware of this, but you can also create conditional custom number formats in
Excel and change the built-in semi-colons that separate positives, negatives, zero, and text.

So if you wanted to display valuation multiples above 100x in one color, those between 0x and 100x
in another color, and ones below 0x in still another color, you could do that with this feature.

But there is a problem: you lose the original, built-in positive/negative/zero/text distinction when
you use conditional custom formats.

So be very careful and use this feature only when absolutely necessary – because there’s no way to
restore these default conditions in any new formats you create that use conditionals.

The operators are the same as the ones you use in normal functions and formulas: = for “Equals,” <>
for “Does Not Equal”, < for “Less Than” and so on. Here are a few examples: