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Module 1A Spreadsheets and Numbers

This document provides an overview of spreadsheets and financial modeling. It discusses the evolution of spreadsheets from basic ledgers to powerful tools for modeling future scenarios. It describes the basic structure and components of an effective financial model, including project description, worksheet description, worksheet flow, inputs, calculations, and outputs. It also covers key modeling concepts like assumptions, decision variables, objectives, functions, what-if analysis, and sensitivity analysis. The goal is to help readers understand how to design, build, and analyze spreadsheet-based financial models.

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NEERAJ N RCBS
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87 views22 pages

Module 1A Spreadsheets and Numbers

This document provides an overview of spreadsheets and financial modeling. It discusses the evolution of spreadsheets from basic ledgers to powerful tools for modeling future scenarios. It describes the basic structure and components of an effective financial model, including project description, worksheet description, worksheet flow, inputs, calculations, and outputs. It also covers key modeling concepts like assumptions, decision variables, objectives, functions, what-if analysis, and sensitivity analysis. The goal is to help readers understand how to design, build, and analyze spreadsheet-based financial models.

Uploaded by

NEERAJ N RCBS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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MODELS, SPREADSHEETS AND NUMBERS

EVOLUTION OF SPREADSHEETS
INTRODUCTION

 Understand the context in which spreadsheets and personal computers first emerged
as tools for individuals
 Review the differences between ledgers & spreadsheets
SPREADSHEET THE ORIGINAL KILLER APP
FROM MUNDANE LEDGERS TO TOOL TO MODEL FUTURE
SPREADSHEET BASICS

 Gain familiarity and comfort in navigating a spreadsheet,


 Identity the different types of data used in a spreadsheet and options for displaying
them
 Use spreadsheet notation for mathematical operations on cells and arrays
 Understand and control the order of processing in formulas
 Use shortcuts for copying data and formulas
POSSIBILITY OF TAKING UP WORK AT HYDERABAD
USING FUNCTIONS

 Learn to use built in functions, including those included in the Business & Financial
Modeling specialization
 Understand the different uses of the sum and sumproduct functions
 Use basic statistical functions of average, min, max and standard deviation
A NEW BUSINESS OPPORTUNITY
USING CONDITIONAL EXPRESSIONS IN FORMULAS

 Use conditional expressions within the logic of your formulas


 Understand some applications of conditional logic
COMMON ERRORS IN SPREADSHEETS

 Understand relative and absolute references in formulas


 Recognize errors in formulas
 Identify and correct circular references
 Audit formulas
FROM SPREADSHEET TO MODEL
FINANCIAL MODELING DEFINITION

 Financial modeling is the task of building an abstract representation of a real world


financial situation
 This abstract representation is called a financial model
 A financial model is designed to represent a simplified version of the performance of
a financial asset, a project, or any other investment
 A financial model is generally build around financial statements such as the income
statement, the balance sheet and the cash flow statement
 The most commonly tool used to build a financial model is Excel
MODELS
STRUCTURE FOR AN EFFECTIVE FINANCIAL MODEL

1. Project Description 2. Work sheet 3. Worksheet 4. Input 5. Calculation 6. Output


Sheet Description flow sheet(s) sheets(s) sheets(s)
PROJECT DESCRIPTION

 The project name


 The name of the scenario
 A brief description of the project
 The model version
 The file name
 The name of the persons who prepared and
reviewed the model
 The names of project sponsor and the project
leader
THE WORKSHEET DESCRIPTION

 The Financial model purpose


 A worksheet overview with the name, the
type and the description of each sheet
 If required, some guidance on how works
each sheet
 The color codes and formatting
conventions used in the financial model
THE WORKSHEET FLOW

 A visual representation of the inputs


sheet, calculations sheet(s) and outputs
sheet(s)
 The relationship between each sheet of
the document
 Links towards each sheet of the
document in order to facilitate the
navigation
THE INPUTS SHEET

 Your company standard assumptions: Assumptions


that are used to assess all the projects of the
company
 Your static assumptions: Assumptions specific to
your project and constant over the whole modeling
period (e.g. tax rate)
 Your dynamic assumptions: Assumptions specific to
your project and changing over the whole modeling
period (e.g. growth rate)
 The source and updated date of all assumptions
 The possibility to select your scenario
CASE 1: TRUE THREAD LTD.

 Step 1: Assess the past performance of TTL


 Step 2: Forecast income statement and balance sheets for the next two years, taking
into account the warehouse expansion
 Step 3: Determine the borrowing needs created by the warehouse expansion
 Step 4: Evaluate the future financial health of the company once the warehouse
expansion is complete
USING ASSUMPTIONS AND DECISION VARIABLES
IN SPREADSHEET MODELS

 Recognize assumptions and decision variables in business models, and the best ways
to reference them in spreadsheet formulas
 Identify different types of metrics for evaluating outcomes of business processes
being modeled
 Incorporate spreadsheet functions within models to identify and highlight outcome
variables
STRUCTURING A SPREADSHEET TO MODEL VARIABLES,
OBJECTIVES AND OBJECTIVE FUNCTIONS

 Design a spreadsheet with distinct locations for assumptions, decision variables,


objectives and objective functions implemented through formulas
 Express logic in formulas using range names
WHAT-IF ANALYSIS & SENSITIVITY ANALYSIS

 Conduct what-if analysis using spreadsheet tools


 Identify key variables using sensitivity analysis

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