MAHARAJA SURAJMAL INSTITUTE

DEPARTMENT OF COMMERCE

FINANCIAL MODELLING LAB FILE

Submitted by: Sumit Kumar Submitted to: Dr. Sarita Rana

Enrolment No.: 04114988821

Semester: Sixth

Course and shift: B.com (Hons.) {1st Shift}

BATCH 2021-24

Affiliated to GGSIP University & NAAC ‘A’ Grade

Accredited Rated as Category ‘A+’ by SFRC & ‘A’ by
JAC Govt. of NCT of Delhi
Recognised U/s 2 (f) of UGC Act & Approved by AICTE
C-4, Janakpuri, New Delhi-110058

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 TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO.

1 Introduction to MS Excel

2 Conditional Formatting

3 Sort & Filter

4 Pivot table and Chart

5 Advance functions of MS Excel

6 What-if Analysis

7 Three Statement Model

8 Approaches to valuation

9 Time Value of Money

1. Discounting Technique
2. Compounding Technique
3. PVF Table
4. CVF Table
5. Non-Discounting Technique
6. Forecasting Methods

10 Assignment-1

11 Assignment-2

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 UNIT – 1
INTRODUCTION
TO MS. EXCEL

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 INTRODUCTION TO MS EXCEL

Microsoft Excel is a spreadsheet program used to record and analyse 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.

An 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 are called a cell. The address of a cell is
given by the letter representing the column and the number representing a row.

The image given below represents what an Excel spreadsheet looks like:

 FEATURES OF MS EXCEL

1. Add Header and Footer

MS Excel allows us to keep the header and footer in our spreadsheet document.

2. Find and Replace Command

MS Excel allows us to find the needed data (text and numbers) in the workbook and also
replace the existing data with a new one.

3. Data Sorting
Data sorting is the process of arranging data in some logical order. MS Excel allows us to sort
data either in ascending or descending order.

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 4. Built-in formulae
MS Excel has got many built-in formulae for sum, average, minimum, etc. We can use those
formulae as per our needs.

5. Create different charts (Pivot Table Report)

MS Excel allows us to create different charts such as bar graph, pie- charts, line graphs,
etc. This helps us to analyse and compare data very easily.

6. Automatically edits the result

MS Excel automatically edits the result if any changes are made in any of the cells.

7. Formula Auditing
Using formula auditing we can graphically display or trace the relationships between cells
and formulas with blue arrows. We can trace the precedents (the cells that provide data to a
specific cell) or the dependents (the cells that depend on the value in a specific cell).

 ADVANTAGES OF MS EXCEL

1. It analysis large amount of data by using powerful tools which help in discovering
trend and pattern thereby impacting decisions.
2. This is skill based which is used to compute equations quickly using large amount of
data.
3. There is considerable support on a number of platforms using smartphone and tablet,
others spreadsheet programmes also support importing excel sheets into their native
formats and exporting their own spreadsheets as excel files.
4. Excel spreadsheet is easily integrated with word document and power point
presentations thereby creating usually dynamic reports or presentations.
5. It provides security for files which can be kept password protected.

 DISADVANTAGES OF MS EXCEL
1. Inexperience users may find calculations and understanding other function as a bit
few-stating task.
2. There are no chances of rectifying human error during data entry, sometimes this
may lead to disastrous results.
3. Entering data manually in excel is time consuming which may lead to boredom and
ultimately result in cost inattentiveness.
4. There is lack of security thereby at a greater risk for data corruption of or
mismanagement of information.
5. This is not designed for collaborative work.

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 CONDITIONAL FORMATTING

Conditional Formatting is a mechanism used in applying formats to a cell or range of cells

that meet a criterion in a certain way. Shortcut key to go to conditional formatting New
Formula is Alt + O + D and then press Alt + N.
Example: A cell will appear in bold only when the value of the cell is greater than 200. If
the format condition is satisfied, the selected format is than applied to the cell.

EXERCISE – 1

(Conditional Formatting)

1. Give Blue cell colour to Top 10 Countries as per Happy Planet Index 2006.

Steps to perform above exercise are:-

1. Open MS Excel. Select the column “Happy Index Plant 2006”.

2. Go to “Conditional Formatting” and click “Top/Bottom Rules”.
3. From the drop-down menu select “Top 10 Items”.
4. A Top 10 Items dialogue box will appear. Choose the color blue from the
‘custom format” in the drop-down menu.
5. Click OK. Your required conditional formatting would be applied.

2. Give Red colour to Bottom 10 Countries as per Happy Planet Index 2009.

Steps to perform above exercise are:-

1. Open MS Excel. Select the column “Happy Index Plant 2009”.

2. Go to “Conditional Formatting” and click “Top/Bottom Rules”.
3. From the drop-down menu select “Bottom 10 Items”.
4. A Bottom 10 Items dialogue box will appear. Choose the color red.
5. Click OK. Your required conditional formatting would be applied.

3. Give Green text colour with yellow fill to Countries whose 2009 index greater
than 2006 index.

Steps to perform above exercise are:-

1. Open MS Excel. Select all the countries.

2. Go to “Conditional Formatting” and click “New Rules”.
3. From the “New Formatting Rules” dialogue box, choose the “use the formula
to determine which cells to format” option.
4. Write the formula “=D2>C2” in the “Format value where the formula is true”
box.

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 5. Go to Format and choose the required font color, i.e., Green, and the required
cell color, i.e., yellow, and click OK.
6. Your required conditional formatting would be applied.

4. Apply Bold formatting to Country name is above is 61.5 in 2006.

Steps to perform above exercise are:-

1. Open MS Excel. Select all the countries.

2. Go to “Conditional Formatting” and click “New Rules”.
3. From the “New Formatting Rules” dialogue box, choose the “use the formula
to determine which cells to format” option.
4. Write the formula “=C2>61.5” in the “Format value where the formula is true”
box.
5. Go to Format and choose “Bold”. Click OK.
6. Your required conditional formatting would be applied.

5. Insert Data bars for Happy Planet Index 2009.

Steps to perform above exercise are:-

1. Open MS Excel. Select “Happy Countries Index 2009”.

2. Go to “Conditional Formatting” and click “Data Bars”.
3. Choose the required data bar from the following options and the same would be
applied.

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 EXERCISE – 2

(Highlighting Specific Cells)

Instead of creating a rule for each value or cell is trouble, therefore, one rule
should be applied based on a formula with the “OR” function.

Fruit Milk Chips

pizza Chocolate Nuts
Egg Burgers Aerated drink
Candy fritters Fruit
Milk Nuts Egg

SOLUTION
The steps of the exercise are as follows:
1. Open MS Excel. Select the table.
2. Go to “Conditional Formatting” and select “New Rules”, choose the “use the
formula to determine which cells to format” option.
3. Use the formula “=OR(A5=”Fruit”,A5=”Egg”,”A5=”Milk”,A5=”Nuts”)
4. Choose the fill-in color from the “Format” option and click OK.
5. Your required conditional formatting would be applied.

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 EXERCISE – 3
(Highlighting ODD/EVEN No.)

23 24 45 67 89
18 17 42 22 97
20 56 57 37 95
60 5 0 59 43
2 3 92 56 32
0 342 322 0 12
1 2 883 5 8
0 32 465 110 285

SOLUTION
The steps of the exercise are as follow:
1. Open MS Excel. Select the table.
2. Go to “Conditional Formatting” and select “New Rules”, choose the “use the formula
to determine which cells to format” option.
3. For highlighting the odd numbers only: use the formula “=MOD(A5,2)=1” or
“ISODD(A5”
4. For highlighting the even numbers only: use the formula “=MOD(A5,2)=0” or
“ISEVEN(A5”
5. For highlighting 0 as neither odd or even: use the formula “=A5=0”.
6. After applying the formula choose the fill-in colors from the “format” option.
7. Your required conditional formatting would appear.

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 EXERCISE – 4

(Highlighting Column Difference)

List 1 List 2
MS Excel Ms Excel
Paint paint
Ms Office Ms office
Notepad Notepad
Mail Mail
Insert watermark Delete watermark
Colour by Value colour by Text
Merge Cells Merge cells

SOLUTION

The steps of the exercise are as follow:

1. Open MS Excel. Select the table.
2. Go to “Conditional Formatting” and select “New Rules”, choose the “use the formula
to determine which cells to format” option.
3. Case sensitive: use the formula “=NOT(EXACT($A3,$B3))”
4. Not case sensitive: use the formula “=($A3<>$B3)”
5. After applying the formula, go to “Format” and choose the fill-in color and click OK.
6. Your required conditional formatting would be applied.

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 EXERCISE – 5

(Highlighting Next Month Dates)

Workshops Dates
Research Methodology 02-02-2022
Physical Sciences 17-03-2022
Artificial intelligence 01-03-2022
Social Sciences 24-04-2022
Academic Writing 02-03-2022
Arts 25-02-2022
Computers 04-02-2022
Mathematics 19-02-2022

SOLUTION

The steps of the following exercise are as follows:

1. Open MS Excel. Select the “Dates” column.
2. Go to “Conditional Formatting” and click “Highlight Cell Rules”.
3. From the drop-down menu select “A Date Occurring...”.
4. From the “A Date Occurring” dialogue box, select “Next month” and click OK.
5. The required conditional formatting would be applied.

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 SORT & FILTER

The filter tool gives you the ability to filter a column of data within a table to isolate the key
components you need. The sorting tool allows you to sort by date, number, alphabetic order
and more.
Essentially, sorting and filtering are tools that let you organize your data. When you sort
data, you are putting it in order. Filtering data lets you hide unimportant data and focus only
on the data you're interested in.

EXERCISE – 1

(Sort in Descending order)

Using sort, find out the salesperson who has maximum sales value.

SOLUTION

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort.

 Select Sort & Filter > Custom sort
 Choose “Value” in sort by and “Largest to smallest” in the order.
 Click OK. Your required sorting would appear.

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 EXERCISE – 2

(Sort in Ascending order)

Sort the database in ascending a number of items sold. Who is the poorest performer?

SOLUTION

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort.

 Select Sort & Filter > Custom sort.
 Choose “Item” in sort by and “Smallest to largest” in the order.
 Click OK. Your required sorting would appear.

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 EXERCISE – 3

(Sort in Alphabetical order)

Your manager wants the sales database in alphabetical order. Use sort.

SOLUTION

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort.

 Select Sort & Filter > Sort A to Z.
 Your required sorting would appear.

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 EXERCISE – 4

(Filter based on conditions provided)

SOLUTION

Retrieve database only for a salesperson who will receive full commission. Use filter.

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort and press Ctrl + Shift + L
 From the commission drop down menu, select Text Filters and Equals…, then type “Full”
 Click OK. Your required sorting would appear.

Filter the records for people who have sales value between $70 and $100.

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort and press Ctrl + Shift + L
 From the value drop down menu, select Number Filters, and Equals…, then choose greater
than equal to, “70” and choose smaller than or equal to, “100”
 Click OK. Your required sorting would appear

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Using the filter, display data for the salesperson who has sold more than the average sales of all
the sales personnel

The steps of the following exercise are as below:

 Open MS Excel. Select the table you want to sort and press Ctrl + Shift + L
 From the Item sold drop down menu, select Number Filters and choose Above Average.
 Your required sorting would appear

SHORTCUT KEYS OF SORTING AND FILTERING

Ctrl + Shift + L Turn filters on/off for the selected cells.

Alt + A + C Clear the filter and sorts state for the current range
of data.
Alt + A + S + A Sort Ascending.
Alt + A + S + D Sort Descending.
Alt + Down Arrow Open the drop-down filter menu.
Spacebar Checks/Unchecks items.
Enter Confirm sorting/filtering options.
Alt + Down Arrow + C Clear all filters in the current filtered range.
Up/Down Arrows To select items.
End To go to last item.
Home To go to first item.
E Access search box.
Shift + Alt + Down Press this key from any cell inside the table to open
the filter drop-down menu for that column.
Alt + Down Arrow + S Sort A to Z.

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  PIVOT TABLE & CHART

We use a Pivot Table report to summarize, analyze, explore, and present summary data and a
PivotChart report to visualize this summary data in a Pivot Table report. It enables us to
easily see comparisons, patterns, and trends. Both a Pivot Table report and a Pivot Chart
report let us make informed decisions about critical data in an enterprise.

It is available as Pivot Table command under “Insert” Tab. The drop-down option facilitates
making a Pivot Chart Report.

EXERCISE

(Prepare Pivot table & Chart)

SOLUTION

1. Specify the total amount each country generated on fruits and vegetables.

The steps of the following activity are below:

1. Open MS Excel. Select any cell of the table you want.
2. Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
3. Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
4. Place Category in Axis, Country in Legends and Amount in Value.
5. Your required pivot table and chart would appear.

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2. Specify the total amount each country generated on each fruit and vegetable they deal
with.

The steps of the following activity are below:

1. Open MS Excel. Select any cell of the table you want.
2. Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
3. Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
4. Place Product in Axis, Country in Legends and Amount in Value.
5. Your required pivot table and chart would appear.

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  WHAT-IF ANALYSIS

What-if-analysis in Excel is a tool in Excel that helps you run reverse calculations, sensitivity
analysis and scenarios comparison. There is further categorization of what-if analysis given
below:
 Goal Seek – Reverse calculations
 Data Table – Sensitivity analysis
 Scenario Manager – Comparison of scenarios

EXERCISE – 1

(Perform Goal Seek on the given data)

Using Goal Seek, how much interest rate would be charged in order to have annuity
value of loan Rs. 1200?

SLOUTION

The steps of the activity above are given as follows:

1. Open MS Excel.
2. Go to “Data” and choose “What if analysis”.
3. From the drop-down menu, choose goal seek analysis.
4. Choose the cell that you want the results to be reflected in “Set as” option (B5, payment
value), write the desired value in “To value” option (-1200) and choose the cell you
want to alter in “By changing cell” option (B4, interest rate) and click OK.
5. Your required alterations would be displayed.

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 EXERCISE – 2

(Prepare a data table)

Book Store:
Total no. of Books % Sold for the highest price
100 60%
No. of Book Unit Profit
Highest Price 60 50
Lowest Price 40 20
Profit 3800
Find the Profit at different price levels by using Data Table?

SOLUTION

The steps of the activity above are given as follows:

1. Select MS Excel from the menu bar.
2. Type the given data.
3. Formulae for profit =(C5*D5+C6*D6).
4. For Goal Seek we have to type the different possibilities as shown in the picture.
5. Now select the whole possibilities data > Data> What-If Analysis dropdown> select
“Data Table” > select cell C5 under Column Input cell.

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 EXERCISE – 3

(Scenario Manager on the given set of Data)

Apply Scenario Manager on the Given Data and create summary

ABC Power Ltd.

Nov.
Plastic 10000
Power 1000
Labour 500

Total Cost 11500

SOLUTION

The steps of the activity above are given as follows:

1. Select MS Excel from the menu bar.
2. Type the given data.
3. Select the total cost cell -> Data -> What-If Analysis -> Scenario Manager -> Add 3
scenarios i.e., Low Cost, High Cost, and Very High Cost.
4. After adding scenario go-to Summary and press “OK”.

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 EXERCISE – 4

(Use Slover Tool for the given set of Data)

SOLUTION

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 ADVANCE FUNCTIONS OF MS EXCEL

LOGICAL FUNCTIONS

1. IF-FUNCTION

Steps of the above exercise are as follows:

 Open MS Excel. Here, we have to perform IF function.
 Condition: Student that scores 60 marks and above will “PASS”.
 The formula will be applied in the RESULT cell (Here C4).
 Formula: =IF(B4>=60,"PASS","FAIL").
 Drag the cell from C4 to C8 to apply the formula in all the cells.

2. AND FUNCTION

Steps of the above exercise are as follows:

 Open MS Excel. Here, we have to perform AND function.

 Condition: Score 1 and Score 2, both must be above 60 for “TRUE” otherwise
“FALSE”.
 The formula will be applied in the RESULT cell.
 Formula: =AND(B17>=60,C17>=90).
 Drag the cell vertically in “RESULT”.

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 3. OR FUNCTION

Steps of the above exercise are as follows:

 Open MS Excel. Here, we have to perform OR function.

 Condition: Score 1 and Score 2, either of them must be above 60 for “TRUE”, otherwise
“FALSE”.
 The formula will be applied in the RESULT cell.
 Formula: =OR(B25>=60,C25>=90).
 Drag the cell vertically in “RESULT”.

4. NOT FUNCTION

Steps of the exercise above are as follows:

 Open MS Excel. Here, we have to perform NOT function.
 Condition: Score 1 and Score 2, neither of them must be above 60 for “TRUE”,
otherwise “FALSE”.
 The formula will be applied in the RESULT cell.
 Formula: =NOT(OR(B34>=60,C34>=90)).
 Drag the cell vertically in “RESULT”

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 5. NESTED IF FUNCTION

The steps of the above exercise are as follows:

 Open MS Excel. Here, we have to perform the NESTED IF function.
 Condition: Monthly sales > 2*target sales, double commission or monthly Sales >target
sales, normal commission.
 The formula will be applied in the COMMISSION cell.
 Formula: “=IF(C7>=(2*$E$2),(C7-$E$2)*(2*$E$3),IF(C7>=$E$2,(C7-
$E$2)*$E$3,0))”.
 Drag the cell vertically in COMMISSION.

6. OR FUNCTION

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The steps of the above exercise are as follows:

 To fill the COMMISSION column, the formula will be “=OR(D21="GOLD",

D21="SILVER")” and drag down the cursor to fill in the rest of the cells.
 To fill the USED WITH IF-FUNCTION column, use the formula
“=IF(OR(D21="Gold", D21="Silver"), (C21-$E$2)*$E$3,0)” and drag down the
cursor to fill in the rest of the cells.
 To fill the NOT FUNCTION WITH IF-FUNCTION, use the formula
“=IF(NOT(D21="Bronze"), (C21-$E$2)*$E$3,0)” and drag down the cursor to fill in
the rest of the cells.
 The next column would be filled manually (TRUE or FALSE).
 To fill the TRUE/FALSE column, use the formula
“=IF(C21>=$E$2,IF(H21=TRUE,(C21-$E$2)*$E$3,0),0)” and drag down the cursor
to fill in the rest of the cells.

7. AND FUNCTION

The steps of the above exercise are as follows:

 To fill the third column, use the formula “=AND(C37>=$E$2,D37= TRUE)” and drag
down the cursor to fill in the rest of the cells.
 To fill the last column, use the formula “=IF(AND(C37>=$E$2,D37=TRUE),(C37-
$E$2)*$E$3,0)” and drag down the cursor to fill in the rest of the cells.

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 MATHEMATICAL FUNCTIONS

1. EXPONENTIAL FUNCTION

The steps of the above exercise are as follows:

 To evaluate the exponential value of 1, use the formula “=EXP(A22)” and press enter.
 To evaluate the exponential value of 2, use the formula “=EXP(A23)” and press enter.
 To evaluate the exponential value of 3, use the formula “=EXP(C22)” and press enter.

2. LN AND LOG FUNCTION

The steps of the above exercise are as follows:

 To evaluate the LN value of 1, use the formula “=LN(A39)” and press enter.
 To evaluate the Log value of 10, use the formula “=LOG(A40)” and press enter.
 To evaluate the Log value of 8, use the formula “=LOG(A41)” and press enter.
 To evaluate the LN value of 10, use the formula “=LN(A42)” and press enter.

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 3. LOG 10 FUNCTION (Log and Power Functions)

The steps of the above exercise are as follows:

 To calculate the value of power, use the power function “=POWER(F46,F47)” and
press enter.
 On the other hand, log and power functions are inverse functions. Therefore, we can
calculate the exponent if the power and base are provided. Hence use the formula
“=LOG(I48,I46)” to calculate the exponent.

4. SUM-IF FUNCTION

The steps of the above exercise are as follows:

 In the first example, to calculate the “Total cost of daffodils for south region” use
the sum-if formula, “=SUMIFS(C70:C78, A70:A78, "S", B70:B78,"D")” and
press enter.
 In the second example, use the formula =SUMIFS(C82:C86,A82:A86, "Circle",
B82:B86, "Red")” and press enter.
 Drag the cursor to evaluate the other values.

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 5. SUMSQ AND ROUND FUNCTION

The steps of the above exercise are as follows:

 For calculating the sum of the square of 1,2,3,4,5, use the formula
“=SUMSQ(A104:E104)” and press enter.
 To evaluate the rounded value of 23.7825, use the formula, “=ROUND(D107,2)” and
press enter.
 To evaluate the rounded value of 23.7826, use the formula, “=ROUND(E107,2)” and
press enter.

The steps of the following exercise are as follows:

 To calculate the value of results in the third column, use the formula
“=ROUND(A115,B115)” and press enter. Drag down the cursor to fill in the other
values.
 In the next example, to calculate the rounded value of 106.864 use the formula,
“=ROUND(A124,0)” and press enter.

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  To calculate the rounded value of 31415.92654, use the formula “=ROUND(A125,2)”
and press enter.
6. ROUND UP AND ROUND DOWN FUNCTION

The steps of the above exercise are as follows:

 To evaluate the rounded-up values in the third column, use the formula
“=ROUNDUP(B132,0)” and press enter.
 To evaluate the rounded-down values in the fifth column, use the formula
“=ROUNDDOWN(B132,0)” and press enter.
 Lastly, to evaluate the rounded-down value of 114.7261, use the formula
“=ROUNDDOWN(A139,0)” and press enter.

7. TRUNC FUNCTION

The steps of the above exercise are as follows:

 To calculate the Trunc values in the third column, use the formula “=TRUNC(A146)”
and press enter.
 For -3.65, use the formula “=TRUNC(A147,B147)” and press enter. Drag the cursor
down to obtain all the other values

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 UNIT – 2
THREE
STATEMENT
MODEL

31
FINANCIAL MODELLING TEMPLATE
In order to build a financial model, one need to take certain assumptions regarding growth
rates, forecasting methods or change in any financial parameter which may affect financial
position of the firm or the project.

The 1st step is to identify key drivers like revenue, cost of raw material, labour, selling and
distribution expenses, capital expenditure, change in future business conditions like rate of
interest, cost of capital, taxation laws, etc.

EXERCISE – 1

(To Prepare Revenue Build-up Sheet based on Assumption Sheet)

ASSUMPTION SHEET

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The key drivers are used to build supporting schedules namely, Revenue Build-up, Cost
Build-up and Interest & depreciation schedule.

 For sales price of FY15 the formula will be = sales price of FY14 * (1 + y-o-y growth
rate of FY15)
 To get all year’s sales prices Repeat step 1 but always take the previous as the base year
and select the y-o-y growth rates accordingly or respectively.
 For sales volume of FY15 the formula will be = sales volume of FY14 * (1 + y-o-y
growth rate of FY15)
 To get all year’s sales volumes Repeat step 2 but always take the previous as the base
year and select the y-o-y growth rates accordingly or respectively.
 Now for revenue segment multiple the sales price with the sales volume of the same
years respectively.
 At the last add the segmented revenue of both the goods to get the Total Revenue of
each year.

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 EXERCISE – 2

(To Prepare Cost Build-up Sheet)

 To get the values of all the Cost Drivers apply this formula = G6 * y-o-y growth rate of
cost drivers.
 Drag the formula to all the cells to get the value of all the cost drivers.
 Now to get the Volumes of Raw Material and Labour, apply the Formula = Sales
volume of “X” + Sales volume of “Y”.
 Drag the formula to all the cells to get the volume of all the years for both Raw Material
and Labour.
 For calculating the Variable Costs use the Formula:-
Raw Material = Cost Drivers * Volumes
Labour = Cost Drivers * Volumes
Selling Expenses = Cost Drivers * Total Revenue
General & Admin Expenses = Cost Drivers
 Now use the Sum function to calculate the Total Variable Costs of Each year.

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 EXERCISE – 3

(To Prepare Supporting Schedules)

 For the calculation of Depreciation apply the Formula = Opening Balance *

Depreciation Rate.
 Drag the Formula to get Depreciation value for each year.
 Now for the Closing balance of each year apply the formula = Opening Balance +
Additions – Depreciation.
 For the calculation of Interest apply the Formula = Opening Balance * Interest Rate.
 Drag the Formula to get the Interest amount for each year.
 Now for the Closing balance of each year apply the formula = Opening Balance –
Interest Amount.

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 EXERCISE – 4
(To Prepare P&L Statement)

 While preparing the Profit and Loss Statement, first transfer the revenues from the
Revenue Build-up Sheet and expenses from the Cost Build-up Sheet of all the years.
 Now to get EBITDA, apply the Formula = Revenue – Total Operating Expenses.
 To calculate EBIT subtract the Depreciation (which we can transfer from Int & Dep
Schedule) from EBITDA.
 Now subtract interest (which can be transferred from Int & Dep Schedule) from EBIT
to get PBT (Profit Before Tax).
 To calculate PAT (Profit After Tax) we have to first calculate the tax amount which
can be done by applying the formula = PBT * Tax % given in the assumption sheet then
subtracting the Tax amount from PBT.
 Now for the dividend paid amount apply the Formula = PBT * Dividend Pay-out %
(given in the assumption sheet).
 At last subtract the Dividend Paid amount from PAT to get the amount which will be
further transferred to Retained Earnings.

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 EXERCISE – 5

(To Prepare the Balance Sheet)

 In the Balance Sheet, we just need to transfer the values from different statements that
we prepared earlier.

1. Secured Loans – Int & Dep Schedule

2. Paid Up Capital – Assumption Sheet
3. Share Premium A/c – Assumption Sheet
4. Retained Earnings – P&L Statement
5. Cash and Cash Equivalent – Cash Flow Statement
6. Net Block – Int & Dep Schedule

37
 EXERCISE – 6
(Linking the Statements)

 For calculation of Cash Flow from Operations first put the values of the PAT,
Interest, Depreciation from P&L Statement then add them.
 For calculation of Cash Flow from Investing first put the values of Increase in
Property, Plant, and Equipment from Assumption Sheet or can be transferred from
Int & Dep Schedule.
 For calculation of Cash Flow from Financing first put the values of the different
financing activities from the respective schedules or sheets then add them.
 Now add all the cash flow from Operating, Investing, Financing Activities to get
the Net Change in Cash Flow.
 At last for the calculation of Closing Balance add the Opening Balance and Net
Change in Cash Flow.

38
 UNIT – 3
APPROACHES TO
VALUATION

39
Approaches of Valuation:

1. Intrinsic Value Model (DCF Model):

 In financial analysis, intrinsic value is the calculation of an asset's worth based
on a financial model.
 Analysts often use fundamental and technical analysis to account for qualitative,
quantitative, and perceptual factors in their models.
 In options trading, intrinsic value is the difference between the current price of
an asset and the strike price of the option.

DISCOUNTING CASH FLOW ANALYSIS

Question

The above question provides the value of the dividend of 5 years and the terminal value along
with the rate and the number of years. Moreover, we need to calculate the values of PVF and
PV.

 PVF, 1/(1+r)^n: to calculate the values of PVF, use the formula “=1/POWER(1+rate,
power number)”. Use the formula separately for different years.
 PV: to calculate the values of PV, use the formula “=value of dividend*PVF of the
respective year”. Drag the cursor to obtain the values of all the other years.

40
Balance Sheet

41
Profit and Loss Statement

42
Forecasting Schedule

The steps of the above activity are as follows:

1. EBIT: the values of EBIT have been derived from the Profit and Loss statement. Use
the formula “=Net Finance Charges + Profit Before Tax” (Net finance charges include
interest).
2. Depreciation: the values of depreciation would be derived from the profit and loss
under the head “Depreciation and Amortisation”.
3. CAPEX: the values of the CAPEX would be derived from the balance sheet. Use the
formula “=BS!D51” (select the cell of CAPEX from the balance sheet).
4. Change in Working Capital: the values of the change in working capital would be
derived from the balance sheet. Use the formula “=BS!C48” (the cell chosen would be
selected from the balance sheet).
5. Sales: the values of the sales would be derived from the Profit and Loss statement under
the head Net Sales. Use the formula “='P&L'!C5” (the cell chosen would be selected
from the profit and loss).

43
DCF Analysis

The steps involved in the above activity are as follows:

1. Risk-free rate: the risk-free rate has been acquired from the assumption sheet.
2. BETA: the value of BETA is also required from the assumption sheet.
3. Equity risk premium: to calculate the value of equity risk premium use the formula,
8% (assumed value) – risk-free rate.

44
4. Cost of equity: to calculate the value of the cost of equity using the formula: risk-free
rate + BETA*equity risk premium. In this case, the cost of equity would be the discount
factor.
5. Terminal growth rate: the value of the terminal growth rate has been acquired from
the assumption sheet.
6. WACC: the formula used to calculate the WACC is the cost of equity + the cost of
debt.
7. Marginal tax rate: the value of the marginal tax rate has been acquired from the
assumption sheet.
8. EBIT: Calculate EBIT using the formula - EBIT*(1-Tax).
9. Depreciation and Amortisation: Add depreciation and Amortization to the Calculated
EBIT.
10. Changes in working capital: Further, deduct Changes in working capital.
11. CAPEX: to derive the values of CAPEX, use the forecasting schedule or balance sheet.
12. Free Cash Flow from Firm: add the values of EBIT, depreciation, amortization,
changes in working capital, and CAPEX to arrive at this value.
13. Terminal value: Calculate the Terminal Value by using the following formula: Free
Cash Flow from Firm*(Terminal Growth rate/{Cost of equity - Terminal Growth rate}).
14. Discount Factor: The discount factor relies on the number of years, therefore the
formula for calculating it is: =1/POWER(1+Cost of Equity, Number of years)
15. Enterprise Value:
i) PV of FCFF: to calculate the present value of FCFF, use the formula: free cash
flow to firm*Discount factors. Derive the present value of FCFF of all the years
using this formula.
ii) PV of TV: to calculate the PV of the TV of the year 2020, use the formula: free
cash flow to firm*Terminal value.
iii) Value of Operations: to calculate the value of operations use the formula: PV of
FCFF of all the years + PV of TV. The required value would be derived.
16. Valuation Per Share
1. The total number of Outstanding Shares: the value of the outstanding shares
would be derived from the profit and loss statement. Add up all the values of all the
financial years and the desired value would be the outcome.
2. Value per Share: use the formula: the value of operations/total number of
outstanding shares to derive this value.

45
 3. Current market price: the value of the current market price would be derived
from the assumption sheet.

Decision: The decision of whether to sell or buy depends on the market value and value per
share. If the value per share is less than market price then "SELL" otherwise "BUY". The
formula to calculate the decision is: IF(Value per Share<Mark

The steps involved in the above activity are as follows:

 Revenue: To calculate revenue, we have to consider the next row wherein revenue growth
(10%) is given. The formula used to calculate revenue growth is:
 =Revenue of Y0 + (Revenue of Y0 * Growth in Revenue of Y1)
 EBIT: to calculate EBIT, we have to again increase the EBIT as per the percentage given
in the next row. The formula used to calculate EBIT is:
 = EBIT of Y0 + (EBIT of Y0 * Growth in EBIT of Y1)
 EBIT(1-T): This is calculated using the following formula:
 = EBIT * (1-Tax rate)

46
 WC: WC refers to working capital. This is calculated using the increase in percentage
which is given in the next row. The formula used here is:

 = WC of Y0 + (WC of Y0 * Growth in WC of Y1)

 Change in WC: Change in working capital is the difference between the previous year’s
working capital and the current year’s working capital. The formula used here is:
 = Previous year WC – Current year WC

 CAPEX: Capex refers to Capital Expenditure. This is calculated using the increase in
percentage which is given in the next row. The formula involved here is:
 = CAPEX of Y0 + (CAPEX of Y0 * Growth in CAPEX of Y1)

 Depreciation: Depreciation is calculated using the increase in percentage which is given

in the next row. The formula involved here is:
 = Depreciation of Y0 + (Depreciation of Y0 * Growth in Depreciation
of Y1)

 FCFF: FCFF refers to Free Cash Flow from the Firm. This is calculated using the formula:
 = EBIT(1-T) + Depreciation – CAPEX – Working Capital

 PV @ K%: In this problem, the rate of K is 15%. Therefore, to acquire the present value
of 15% for different years using the formula,
o "=1/(1+r)'n". User (rate) as 15% and n (number of years), i.e., 1,2,3,4,5 years.

 PV @ Cash Flows @ 15%: after the calculation of the above figures, we can easily
calculate the present value of the cash flows. For the calculation of PV of cash flows use
the formula, "FCFF*PV @ K", therefore in this question "FCFF*PV @ 15%". After
calculating for year 1 we can further drag the cursor to derive the values for all the other
years.

47
STEPS FOR VALUE OF FIRM

 Terminal growth: the terminal growth is already provided, i.e., 6%

 Terminal value: for the ease of the question asked the terminal value was already provided
for this question, i.e., 1724.6
 PV @ 15%: for calculating the present value at 15% use the formula, 1/(1+r)'n. User (rate)
15% and n (number of years) 5 years.
 PV of terminal value: to obtain the present value of the terminal value given, multiply the
terminal value with the PV @ 15%, i.e., "Terminal Value*PV @ 15%".
 Value of firm: to obtain the value of the firm, use the formula, Value of firm = Sum (PV
of all cash flows) + (PV of terminal value). Hence the resultant value would be 1256.

CALCULATION OF WACC

In this problem, Rf, Rm-Rf, Beta, We, Kd, Wd, and Tax are already given and with the help
of these components, we need to derive Ke, effective Kd, and lastly with all the other
components calculated we will calculate the value of WACC.

 Ke: to calculate the value of Ke, use the formula "=Rf + Beta*(Rm - Rf). All the values
are already provided and with the use of the values, the value of Ke would come out to
be 20.998% (explicit) and 19% (stable)

48
 Effective Kd: to calculate the value of effective Kd, use the formula "Kd*(1-Tax)".
Since we do not include tax in the calculation of effective Kd, it would be subtracted
in the formula. The resultant figures would be, 9% for both explicit and stable.
 WACC: the calculation of WACC requires the use of the formula, i.e., WACC =
(Ke*We) + (Effective Kd*Wd). With the figures that we have above calculated, we
can easily calculate the value of WACC. Therefore, the value of WACC would be 15%
for both explicit and stable.

49
 UNIT – 4
TIME VALUE OF
MONEY

50
Most Financial Decisions involve the use of the concept of Time Value of Money in order to0
compare the cash flows arising at different points in time.

Opportunity Cost- It is the rate of return that could have been earned by putting the same
amount of money into a different investment with equal risk. It is the rate of return required
to persuade the investor to make a given investment.

Concepts of the present value function and future value function are used for making cash
flow comparable either:

a. By discounting the future Cash Flow to present value,

OR
b. By compounding the present money to a future date.

1. DISCOUNTING TECHNIQUE

Q.1 X sells goods of ₹1500 on credit of 3 years. Opportunity Cost is 10%. Find out the
present value.

Ans. PV = FV * PVF (10%, 3)

= 1500 * 0.751
= ₹ 1126.50
In excel, the same can be shown as following through modelling.

Syntax: = PV {rate, Nper, pmt, [fv], [type]}

Where, Nper is number of periods

Rate is rate of discount per period
PMT is payments made each period
FV is future value
Type (optional) set to 0 if payment is at the end of the period and 1 if it is in the beginning.

51
Q.2 X sells goods for which he offers following option for payment

i. Pay ₹2500 now

OR
ii. Pay ₹900 at the end of 1st, 2nd and 3rd year from now.

The customer having required rate of return of 10% can choose between these options.

Ans. PV = Annuity Amount * PVAF (10%, 3yrs)

= 900 * 2.487
= ₹ 2238.3

52
Q3. A recurring amount of ₹1000 is receivable in the beginning of each of the four years
starting from now @6%. Find out the present value. {Annuity due}

Ans. PV = Annuity Amount * PVAF (6%, 4yrs) * (1+r)

= 1000 * 3.465 * (1+0.06)
= ₹ 3673

Q.4 A bank makes an offer to deposit with it a sum of ₹16,000 and then receive a return
of ₹1800 p.a. perpetuity. Should the offer be accepted by an investor whose opportunity
rate is 12%? Will the decision change if its rate of return is 10%? {Present Value of
Perpetuity}

Ans. PVp = Annual Cash Flow/r

PV of perpetuity, if r = 12% = 1800/0.12 = ₹15,000
And, if r = 10% = 1800/ 0.10 = ₹ 18,000

At 10% the offer will be selected.

53
2. COMPOUNDING TECHNIQUE

EXERCISE-1

(To calculate the Future Value)

Q1. An investor is interested to find out future value of ₹5000 invested today for 10 years
@5% rate.

Ans. FV = PV * CVF (5%, 10yrs)

= 5000 * 1.629
= ₹ 8,145
In excel, the same can be shown as following through modelling.

Syntax: = FV (rate, Nper, pmt, [pv], [type])

Q2. A recurring deposit of ₹100 is made in beginning of each of 4 years from now @6%.
What will be the total deposit at the end of 4 year?

Ans. FV = Annuity Amount * CVAF (6%, 4yrs) * (1+r)

= 100 * 4.375 * (1+0.06)
= ₹ 463.75

54
Q3. How much amount should be invested each of next five years @10% to accumulate
₹1 lakh at the end of that period? Find out the annuity amount.

Ans. Annuity Amount = FV/CVAF (10%, 5yrs)

= 1, 00,000/6.105
= ₹ 16,380.01

Q4. A person borrows ₹1 Lakh today to be repaid in equal annual instalment at the end
of each of 5 years in such a way that interest @10% is also paid. Find out the annuity
amount.

Ans. Annuity Amount = PV/PVAF (10%, 5yrs)

= 1, 00,000/3.791
= ₹ 26,378.264

55
 Q5.
One
has

₹1250 today and how long will it take to double money ₹2500 assuming rate of interest
@9% per year.

Ans. CVF (9%, n) = FV/PV

= 2500/1250
= ₹2
Look at CVF Table at 9%, n = 8years.
In excel, the same can be shown as following through modelling.

Syntax: = NPER (rate, pmt, pv, [fv], [type])

Q.6 One is planning to send his daughter to college in 18 years and assuming that one
need ₹1, 00,000 at that time to pay for tuition, room, etc. If one has ₹20,000 to invest
today, what annual rate of return one need to earn in order to reach this goal.

56
Ans. CVF (r, 18yrs) = FV/PV
= 1, 00,000/20,000
= ₹5
Look at 18 years,
9% 4.717
10% 5.560
r = 9 + (5.000 – 4.717)/ (5.560 – 4.717) * (10 – 9)
r = 9 + .34
r = 9.34% (IRR)

Syntax: = RATE {Nper, pmt, pv, [fv], [type], [guess]}

57
3. CALCULATION OF PRESENT VALUE FACTOR (PVF) TABLE

The steps to calculate PVF table are:-

 Open MS Excel. Here, we have to calculate the Present Value Factor (PVF) Table.
 In order to get the table, use the below mentioned formula
 Formula: “=1/(1+$B$4)^A5” for 1st year at 1%.
 Drag the cell vertically.
 Also, drag the cell horizontally to get the required output.

58
4. CALCULATION OF COMPOUND VALUE FACTOR (CVF) TABLE

The steps to calculate CVF table are:-

 Open MS Excel. Here, we have to calculate the Compound Value Factor (CVF) Table.
 In order to get the table, use the below mentioned formula
 Formula: “=1*(1+$C$27)^B28” for 1st year at 1%.
 Drag the cell vertically.
 Also, drag the cell horizontally to get the required output.

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5. APPLICATION IN CAPITAL BUDGETING

EXERCISE-1

(Calculation of Net Present Value)

A. Net Present Value:

NPV = Present value of cash inflow – Present value of cash outflow

Syntax: = NPV (rate, value1, [value2], [value3] …)

Q1. A machine is available for ₹1, 70,000 and having life of 5 years. It is expected to
generate cash flows of ₹20,000, 50,000, 60,000, 40,000 & 75,000. Find out the NPV of
machine assuming rate of return is 10%.

SOLUTION

60
 EXERCISE-2

(Calculation of Internal Rate of Return)

This function returns the internal rate of a capital budgeting proposal based on the relevant
cash flows occurring at an annual interval. It defines the rate at which NPV is 0.

Q.1 A firm is evaluating a proposal of ₹1.6 lacs and expected to generate cash flows of
40K, 60K, 50K, 50K & 40K. There is no salvage value. Find out the IRR of the proposal.
Should it be taken up if the hurdle rate of the firm is 12%?

It is defined as the rate of return or discount rate at which NPV should be zero and where
values represent all the cash flows of the project (inflows as well as outflows) and guess
represents the hurdle rate whose default value is 10%.

Steps involve are as follows:

1. Enter year 0, 1, 2, 3, 4 & 5 in column.

2. Enter = - C1 in C5. And, add ₹0 in the end as scrap value to the last year CFAT.
3. To calculate PVF, use formula 1/ (1+r) ^n i.e. 1/ (1+$C$2) ^B5.
4. Calculate present value of cash flow by multiplying respective column.
5. To calculate NPV, use a function = SUM (number1, [number2] …) i.e. =SUM (E5:E10).
6. As NPV is positive, accept the proposal.
7. To calculate IRR, insert a syntax = IRR (values, [guess]) i.e. =IRR (C5:C10). Press Enter.
8. As IRR is more than the hurdle rate, accept the proposal.
9. As PI > 1, therefore, accept the proposal.

61
62
6. NON-DISCOUNTING TECHNIQUE

EXERCISE-1

(Calculation of Accounting Rate of Return)

ARR = Avg. Annual Profit after tax *100

Avg. Investment

Where Avg. Investment = ½(Initial investment – Salvage value) + Salvage Value +

Additional working Capital

Calculation of ARR is shown below:

63
7. FORECASTING METHODS

EXERCISE-1

(Moving Average Method)

EXERCISE-2

(Exponential Smoothing)

64
 EXERCISE-3

(Leverages & EPS)

Formula for Leverage = % Change in dependent variable/ % Change in independent variable.
There are mainly 3 kinds of Leverages i.e. Operating Leverage, Financial Leverage and Combined
Leverage.
1. Degree of Operating Leverage = Contribution/ EBIT
2. Degree of Financial Leverage = EBIT/ EBT
3. Degree of Combined Leverage = Contribution/ EBT
4. EPS = Profit available to Equity Shareholders/ No. of Outstanding Equity Shares.

= Net Income – Preference Dividend/ Weighted average common share outstanding.

Exercise:
From the following data, compute Leverages and EPS.

65
 ASSIGNMENTS

ASSIGNMENT-1

(Defining and Naming Cells)

1. Write steps for calculating maturity amount of Fixed Deposit.

Steps:

 Select cell B4 > On the Formulas tab, in the Defined Names group, click Define
Name > Enter the name Principal and click OK. Similarly, name B5 as maturity and
B6 as Rate.

 To calculate maturity amount type this formula: =(B4*(1+B6*B5))

 Press Enter to obtain the desired result.

66
2. Write steps for naming matrix and calculating their sums.
Steps:

 Select the range B2:D5 > On the Formulas tab, in the Defined Names group, click
Define Name > Enter the name A and click OK. Similarly, name B8:E11 as B.
 To calculate sum of matrix A and B, enter function in any cell = SUM (A) and SUM
(B) respectively.

Press Enter to obtain the desired result i.e., 224 and 587.

3. Instructions:

A. Fill the blank cells using appropriate formula or function.

B. Plot the percentage marks on a relevant chart type

C. Give proper chart title, axis title, etc.

67
Steps:

A)
 To calculate total marks, enter function in G3 cell = SUM (C3:F3). Drag down the
copied formula using fill handle to display total marks of 15 students in different
subjects.
 To calculate percentage, enter formula in H3 = (G3/400)*100.
 To compute average marks, enter formula in cell C18 = AVERAGE(C3:C17)
 Press Enter and drag formula to obtain desired result.

B)
 Select the range B3:B17 and H3:H17.
 On the Insert tab, in the Charts group, select the chart type you want.
 Click OK.
 The chart will be displayed in your worksheet.

C)
 To change the title text, simply select the chart title box and type your title as
percentage of students.
 Click on the chart and you will see the “Design” tab from the ribbon.
 In the “Design” Tab, click “Add Chart Element”.
 Click “Axis Title” and select “Primary Horizontal” or “Primary Vertical”.
 You will see the Axis title now appear in the chart. Enter name of the students in
horizontal axis and percentage in vertical axis.

Result:

68
 ASSIGNMENT-2

(Pivot Table)

1. Who sold how many pizzas?

The steps of the following activity are below:

 Open MS Excel. Select any cell of the table you want.
 Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
 Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
 Place Employee Names in Axis and Time in value.
 Your required pivot table and chart would appear.

2. Which type of pizza was sold how many times?

The steps of the following activity are below:

 Open MS Excel. Select any cell of the table you want.

 Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
 Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
 Place Pizza in Axis and Time in value.
 Your required pivot table and chart would appear.

69
 3. Who generated what revenue i.e., total values of pizza sold?

The steps of the following activity are below:

 Open MS Excel. Select any cell of the table you want.

 Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
 Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
 Place Employee Names in Axis and Total in value.
 Your required pivot table and chart would appear.

4. Which pizza generated what revenue?

The steps of the following activity are below:
 Open MS Excel. Select any cell of the table you want.
 Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.

70
  Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
 Place Pizza in Axis and Total in value.
 Your required pivot table and chart would appear.

5. What type of pizzas are sold in a given month?

The steps of the following activity are below:
 Open MS Excel. Select any cell of the table you want.
 Go to Insert > Pivot Chart > Pivot Chart & Pivot Table > New worksheet.
 Parameters of the pivot table and chart would appear in a new worksheet along with the
Pivot Chart Fields.
 Place Pizza in Axis, Month in Legends and Total in value.
 Your required pivot table and chart would appear.

71