Benefits of Financial Modeling

BY NICHOLAS SCHIAVO DECEMBER 9, 2014

Financial Modeling is critical to any startup or to an existing
business seeking to capitalize on the next level. When the term
Financial Modeling resonates, most companies think of a three
to five year financial analysis that is attached to a Business Plan.
While this definition is accurate, financial modeling applications
are more extensive and necessary to provide vision, to garner
early stage investors, and to provide stakeholders with
valuable information (i.e., a VC Firm requiring data to manage
their investment).

Why Utilize a Financial Model?

So, why should a business consider these financial modeling
applications? The answer can vary depending on the needs of the
organization, but can encompass:

Managing cash flows

Identifying financial risk and strategy
Analyzing quality of earnings
Examining EBITDA

Like most companies, human capital is stretched. So, whether

the individual is a CEO, sales, marketing, or purchasing
executive, financial modeling is a focal point in making decisions.
In addition, external stakeholders, such as bankers,
investors, venture capital/private equity firms, and vendors
demand financials, as evidence to properly fund an organizations
growth.

Two Practical Examples of Financial

Model Benefits
Consider a Venture Capital or
Private Equity Firm
Venture Capital and Private Equity firms are focused on
the financial health of their operating companies. Their main
question What is the return on their investment? To answer this
question, they require a rigorous budgeting process that
encompasses financial modeling. They may want to see the
financial impact of the need to spend money on marketing,
product development, etc. Or, perhaps the operating company
may need to cut expenses for profitability. The outcome of these
decisions will require providing metrics such as EBITDA
and breakeven analysis. These metrics will enable management
to make the proper decisions to profitably manage the company.

Consider a Sales Director

A Sales Director is charged with establishing sales objectives by
forecasting annual sales volume and profit margins for
various regions, representatives, and products. The Sales
Director also establishes and adjusts product pricing, monitors
costs, meets competitive pressures, deals with economic
indicators, and is cognizant of supply and demand. In order to
properly price products, the Sales Director needs to know the
component costs of each and every product to maintain a
competitive edge and make a contribution above costs!

As the organization grows, the Sales Directors job expands to

include new territories. Financial modeling plays a key role by
analyzing revenue sources and projecting growth, based on
market size. Furthermore, the total dollar value of revenue
generated, units sold, and average purchase value are key
metrics to determine where sales reps need to spend their time.

The End Result

Financial models need to be flexible and live. As the organization
grows, product lines expand and external forces impact a
companys direction; hence, financial models must be able to
monitor these rapid changes.

Models will always produce an actual vs forecast results analysis,

forecasting cash flow, and production of extensive KPIs and
other analytics. This data is critical for the key stakeholders to
manage business and calculate ROI.
In the end, financial modeling allows stakeholders to try before
they buy and can prove how one decision can impact an overall
business. Financial models capture the future
operating, investing and financing activities that determine future
profitability, financial position, and risk.

Financial Modeling : Advantages of Financial

Modeling
Knowledgiate Team Budgeting, Business, Finance 785 Views

Financial modeling is the function of creating an abstract representation of a

financial situation. Financial Models are mathematical models aimed at
representing the financial performance of a business entity. In practice,
Financial Models are used in budgeting process and cash management. In
addition to this, there are other uses of Financial Models which can provide
important insights for decision making. With a model we can analyze how
much gross profit is necessary to achieve a target result under a given cost
structure (variable and fixed costs) (breakeven analysis). As a result, various
strategic advantages can be achieved. For the preparation of Financial
Models, expertise in various financial areas is required.
Financial Modeling work with simplistic and idealized assumptions to make a projection of Companys
financial position. A good financial model should be as detailed as necessary and as simple as possible.

The key components of a Financial Model :

The main components of Financial Models are the income statement, balance sheet and cash flow
statement. Depending on the company structure, separate income statement, balance sheet and cash
flow statement may be created for each subsidiary.
 Since Financial Models can be very complex, the data flow and the structure of the model must be well
considered and planned. The data flow should be uniform throughout the model. Periods of models for
example, should always flow from left to right (past, actual, plan) or sums from top to bottom.
Furthermore, a well structured Financial Models increases sustainability and the clarity and reduces the
error rate.

All information necessary for the model are stored in a file. In general, the creation of a model is divided
into four parts.

1. Store all necessary raw data in spreadsheets (for example, business reports)

2. Make necessary calculations (for example, price-quantity framework).

3. Derive results of the Financial Models (for example, the generating cash flow statement).

4. Visualization of results (for example, creating graphs and charts).

Advantages of financial modeling :

The benefits of financial modeling are huge. The most important advantage is availability of information
for decision making in order to take strategic advantage. Even if a model is based on assumptions, this
can help you to estimate the financial results. In a model, different scenarios can be created and tested.
Thus, a company can adapt quickly to a changing situation and avoid liquidity risk.
Another advantage of the financial modeling is its flexibility. Experienced Financial Modeller can make
extensive changes to a model in a few hours. Another important advantage is the efficiency of the
Financial Modeling. Spreadsheet programs are installed by default on most computers and therefore no
additional investment is required. In addition, no programming skills are required.

Conclusion: Financial Models can be used to assess future earnings, assets and liquidity situation of a
company. So it should be constructed as detailed as necessary and not as easy as possible. Although
the financial modeling is anticipated assumptions, it provides a company a number of advantages. It has
outstanding insights for strategic decision.
7. Advantages of using financial models

From the previous few pages, it is easy to see that there are many reasons why

financial models are used.

In your examination, if you are asked to identify the advantages of using financial
models, here are some of the reasons which you could give:

- What if...? statements can be asked without rebuilding a model from scratch
each time the test is executed.

- Models try and minimise financial risk, as you know 'if you do this' then 'this is
likely to happen'

- Models provide quick answers to things that may take months to actually
happen. Automatic recalculation means that if a change is made in the model
then all related formulae and values change.

- Graphs can be produced to help understand the result: these will

automatically change as any values are added.

- The model can be shared between different people in different locations.

- As long as the person is familiar with the model and has a good set of rules to
follow then it is easy to run the model.
- They provide consistent results - the same inputs will always produce the
same answer so a decision to 'make that loan' to a customer by a finance
employee does not depend on how that person is feeling that day.

Financial Modeling
Financial analysis Print Email
Meaning and definition of financial modeling
Financial modeling refers to the process through which a company builds up a financial
representation of some, or even all aspects of the company or the given security. The financial
model is generally featured by performing calculations, and making recommendations on the basis
of that information. Moreover, the model might also prcis specific events for the end user in addition
to providing direction regarding possible alternatives or actions.
As explained by Investopedia, financial models can be created in different ways including the use of
computer software and the use of a pen and a paper. For instance, a financial model can prcis
investment management returns or might help in estimating the market direction.
Accounting of financial modeling
In investment banking, corporate finance, and the accounting profession, financial modeling is
mainly synonymous with cash flow forecasting. This generally includes preparing detailed company
specific models which are used for the purpose of decision making and financial analysis. The
applications mainly include:
Business valuation, particularly discounted cash flow, but counting other valuation problems.
Management decision making and scenario planning (like what is, what if, what has to be
done, and similar more.
Cost of capital
Capital budgeting
Project finance
Financial statement analysis
Why is financial modeling important?
Financial modeling acts as a useful tool which enables business options and risks to be estimated in
a cost-effective way against various assumptions, recognize optimal solutions in estimating financial
returns and understand the effect of resource constraints thus leading to more effective business
decisions.
Financial modeling can be referred as an art and like any other art form, it requires constant [practice
and commitment to develop expertise in this area. In the present day world, many companies are
becoming globally integrated with the international economy through the way of
acquiring/establishing international operations. This calls for the requirement of strong financial
models which can assist in performing the evaluation of every countrys operations, reflect on
multiple currencies in their model, estimate varying capacity utilizations to estimate the optimal
capacity under changeable industry demand-supply scenarios and similar more cases.

Financial Modeling

Financial Modeling is a tool that can be used to forecast a picture of a security or a financial
instrument or a companys future financial performance based on the historical performance of
the entity. Financial Modeling includes preparing of detailed company specific models which are
then used for the purpose of decision making and performing financial analysis. It is nothing but
constructing a financial representation of some, or all, aspects of the firm or given security. OR
it is mathematical model of different aspects of financial health of a given company and this
model can be made on a simple not book paper or in excel, with later it is easily possible to
analyse the impact of different assumptions or change in value of various variables hence gives
the more flexibility. Financial modeling is a mirror which shows whether

An Organization is in need of additional funds (debt or equity) or not

how a business will react to different financial situations or market conditions

In which company we should make investment for better returns i.e.

comparative analysis

Analyzing and defining the risk level

Has the company had a change in direction that is loss of customers,

expansion etc.

Identifying of Strategic and Business Plans through finding strengths and

weaknesses.

Its a technique to value and analyze Firms, IPOs and FPOs

A good financial model should

Be relatively simple

Focus on key cash flow drivers

Clearly convey assumptions and conclusions

Evaluate Risks

Financial Modeling forms a core of various other Finance areas like Equity Research,Investment
Banking, Credit Research etc. If you are searching for a Financial Modeling Online
Course/Training then you may consider one of our Financial Modeling courses here.

Applications of Financial Modeling training course

The purpose of Financial Modeling is to build a Financial Model which can enable a person to
take better financial decision.The decision could be affected by future cash flow projections ,
debt structure for the company etc. All these factors may affect the viability for a project or
investment in a company.The Applications of Financial Modeling mainly includes the
followings :
 One applications of Financial Modeling may be Business Valuation that is
deciding the fair value for a business . Financial Modeling will help
participants to reach to a price they are willing to pay or accept for the
selling business.

Second applications of financial modeling is Organizations decision making

and scenario preparation .Financial Modeling is used by organizations for
future planning their long term goals according to different situations that
may arise.

To decide the Cost of Capital if a company is going to invest in a new project

then Financial Modeling for it will give analysis for debt/equity structure and
expectation in return by investors ,thus setting benchmarks for project to
meet .

Capital Budgeting -Financial Modeling helps companies determine alloting

resources for major expenditure or investment etc.Purpose increasing the
value for the firm.

Project Finance

Financial Statement Analysis

Basic Financial Analysis tools include

Common size financial statements

Analysis of Various Ratios

Trend or Pattern analysis

Industrial comparatives

Best Practices in Financial Modeling

In Financial Modeling it is desired that the working should be error less and should be easier to
read and understand for audit purposes. By following these key principles, model will be easier
to navigate and check, and reliable.

For most obvious results we need to follow the Firms standard format

Maintaining appropriate number of sheets

Using page breaks wherever required

Writing Executive Summary on top if desirable

Maintain versions of documents if future up gradations are expected

The following points should be kept in mind:

Spreadsheet Design

Using modular spreadsheet blocks will make changing each sheet easier
without affecting others.

Proper protection should be given to the sheets and workbooks from

unauthorized usage.

Labeling sheets, columns and rows with their applicable headings so that files
will become easy to follow.

Better Document your assumptions

Assumptions documentation helps with validation & avoids misinterpretation.

Listing assumptions will be helpful for easier and quicker understanding.

Adding source data as well as calculations will provide a good map.

Use Linking and not hard-coding

Linking wherever required will be a good practice such that when the inputs
change, the outputs will be changed automatically

It will save lots of hassles at final stage or at working stage

Facilitate Data entry at one place only

Avoid retyping of data, entering it once as a source and referencing it will

make good sense.

Its always better to link cell value rather than writing numeric value for
calculations.

Good Practice is using Consistent Formulas

Using formulas and functions will be accurate and will save time.

Do not copy formula from one sheet to another as it will create links in files.

Avoid unnecessary blank columns and rows as this can be tedious at the time
of making tables or other charts.

Creating Templates will be beneficial

Formatting Charts

Be precise with chart axes scale

Creating a VBA Style Guide containing rules and details about coding
standards is good

Format and Label Clearly

Its very important to format cells appropriately i.e. we should follow standard
practices eg. we should use symbols for currency , percentages values etc. ,
which will make model easier for reading.

In Financial Modeling clear labeling is very important to improve readability

Try using different background colors for distinguishing input areas and
calculation parts

Common Financial Modeling Approaches

Financial Modeling Income Statement: Line Item Drivers

a) Financial Modeling Revenues Projections For most companies revenues are a fundamental
driver of economic performance. A well designed and logical revenue model reflecting
accurately the type and amounts of revenue flows is extremely important. There are as many
ways to design a revenue schedule as there are businesses. Some common types include:

1. Sales Growth: Sales growth assumption in each period defines the change
from the previous period. This is simple and commonly used method, but
offers no insights into the components or dynamics of growth.

2. Inflationary and Volume/ Mix effects: Instead of a simple growth assumption,

a price inflation factor and a volume factor are used. This useful approach
allows modeling of fixed and variable costs in multi product companies and
takes into account price vs volume movements.

3. Unit Volume, Change in Volume, Average Price and Change in Price: This
method is appropriate for businesses which have simple product mix; it
permits analysis of the impact of several key variables.

4. Dollar Market Size and Growth: Market Share and Change in Share Useful for
cases where information is available on market dynamics and where these
assumptions are likely to be fundamental to a decision. For Example: Telecom
industry

5. Unit Market Size and Growth: This is more detailed than the preceding case
and is useful when pricing in the market is a key variable. (For a company
 with a price-discounting strategy, for example, or a best of breed premium
priced niche player) e.g. Luxury car market

6. Volume Capacity, Capacity Utilization and Average Price: These assumptions

can be important for businesses where production capacity is important to
the decision. (In the purchase of additional capacity, for example, or to
determine whether expansion would require new investments.)

7. Product Availability and Pricing

8. Revenue driven by investment in capital, marketing or R&D

9. Revenue based on installed base (continuing sales of parts, disposables,

service and add-ons etc). Examples include classic razor-blade businesses
and businesses like computers where sales of service, software and upgrades
are important. Modeling the installed base is key (new additions to the base,
attrition in the base, continuing revenues per customer etc).

10.Employee based: For example, revenues of professional services firms or

sales-based firms such as brokers. Modeling should focus on net staffing,
revenue per employee (often based on billable hours). More detailed models
will include seniority and other factors affecting pricing.

11.Store, facility or Square footage based: Retail companies are often modeled
based on the basis of stores (old stores plus new stores in each year) and
revenue per store.

12.Occupancy-factor based: This approach is applicable to airlines, hotels, movie

theatres and other businesses with low marginal costs.

b) Financial Modeling Costs projections Drivers include:

1. Percentage of Revenues: Simple but offers no insight into any leverage

(economy of scale or fixed cost burden

2. Costs other than depreciation as a percent of revenues and depreciation from

a separate schedule: This approach is really the minimum acceptable in most
cases, and permits only partial analysis of operating leverage.

3. Variable costs based on revenue or volume, fixed costs based on historical

trends and depreciation from a separate schedule: This approach is the
minimum necessary for sensitivity analysis of profitability based on multiple
revenue scenarios

c) Financial Modeling Operating expenses

1. General and Administrative: Generally treated as % of Revenues

 2. Sales and Marketing: Generally modeled as % of Revenues. In some cases, it
is actually a revenue driver and not driven by revenues. For example,
brokerage business or pure plays trading and marketing firms.

3. R&D: Generally R&D costs are treated as % of revenues.

d) Financial Modeling Interest expense (or Net interest expense):

1. This is one of the few income statement items that is driven by balance sheet
information. A interest schedule is generally developed to i) calculate interest
received on cash and short term investments and ii) calculate interest
expenses arising from all types of debt. Interest rate assumptions are
needed.

2. Ending balance of previous year can be used to calculate interest expenses to

avoid circular reference in excel

3. Average balance can be used as well (it will give circular reference though)

e) Financial Modeling Income taxes:

1. Effective tax rate is generally used. Effective rate is calculated as Taxes paid /
Pre-Tax income.

2. For future years, either the marginal tax rate equivalent to the country of
incorporation is taken or if the effective rate is much lesser than the marginal
tax rate then during the initial years, tax rate can be low but gradually would
have to be moved to marginal tax rate. For example, In India, marginal
corporate tax rate is 33%.

Balance Sheet: Line Item Drivers (Assets)

Cash and Cash Equivalents:

o Linked to cash from Cash Flow Statement

Accounts Receivable (Part of Working Capital Schedule):

o Generally modeled as Days Sales Outstanding;

o Receivables turnover = Receivables/Sales * 365

o A more detailed approach ma include aging or receivables by business

segment if the collections vary widely by segments

o Receivables = Receivables turnover days/365*Revenues

Inventories (Part of Working Capital Schedule):

 o Inventories are driven by costs (never by sales);

o Inventory turnover = Inventory/COGS * 365; For Historical

o Assume an Inventory turnover number for future years based on

historical trend or management guidance and then compute the
Inventory using the formula given below

o Inventory = Inventory turnover days/365*COGS; For Forecast

Other Current Assets (Part of Working Capital Schedule):

o Modeled as % of sales

Fixed Assets (Property, Plant and Equipment)

o Separate schedule is prepared taking into account various components

o Ending Balance for PPE = Beginning balance + Capex Depreciation

Adjustment for Asset Sales

Balance Sheet: Line Item Drivers (Liabilities)

Financial Modeling Current Liabilities Projections

o Accounts Payables (Part of Working Capital Schedule):

o Payables turnover = Payables/COGS * 365; For Historical

o Assume Payables turnover days for future years based on historical

trend or management guidance and then compute the Accounts
Payables using the formula given below

o Accounts Payables = Payables turnover days/365*COGS

o Short Term Debt: Usually modeled as part of debt schedule

o Accrued Liabilities: Kept constant most often; Can be modeled as % of

sales

o Deferred taxes: Kept constant most often; Can be modeled as % of

sales

o Other Current Liabilities: Can be modeled as % of COGS or as % of

Sales

Long term Liabilities:

 o Deferred taxes: Kept constant most often; Can be modeled as % of
sales

o Post retirement Pension Cost: Kept constant most often

o Long term Debt: Usually modeled as part of debt schedule (please

refer debt schedule on next page)

o Key feature of the debt schedule is to use the Revolver facility and how
it works so that the minimum cash balance is maintained and ensures
that the Cash account does not become negative in case the operating
cash flow is negative (Companies in investment phase who need lot of
debt in initial years of operation Telecom cos for example)

o Overall range of Debt to equity ratio should be maintained if there is

any guidance by the management

o Debt balance can also be assumed to be constant unless there is a

need to increase the debt

o Notes to the accounts would give repayment terms and conditions

which need to be accounted for while building the debt schedule

o For some industries, like Airlines, Retail etc Operating Leases might
have to capitalized and converted to debt. However, this is a complex
topic and beyond the scope of discussion at this point

Who should study Financial Modeling?

The Financial Modeling could be beneficial to a vast majority of peoples,Some of the cases
are summarized below

The aspirants of Financial Modeling Course can be everybody who wants to

explore the world of finance and get involved in money related decision
making. These people can be Executives, Business planning and strategy
deciders, Managers working with Banks, Equity Researchers, Project
Managers , Research Analysts, Investment Banking people, Portfolio
Managers, Commercial Bankers, Risk Managers, Accountants, and all those
who are part of the finance department in all types of the firms

Its an added advantage for those people who are pursuing CA, MBA, CFA,
FRM and Commerce graduates

Also the candidates having Degree, Diploma, in technical fields like B .TECH
or Engineering who wants to make a career in finance

Any individual who just want to gain knowledge out of passion or curiosity
Now after knowing Who can do Financial Modeling Course now let us look at what all it need ,
to go for a financial modeling training .

Who can do Financial Modeling OR Financial Modeling Pre-requisites:

The following points could be advantageous :

Basics of Finance and accounting concepts (e.g. fundamental, valuation

concepts etc.)

Thirst to learn financial conceptual terminology, general business procedures

and self confidence.

Usage of Excel

Though even if you know nothing about above mentioned knowledge then do not get dishearten
it simply means that you are supposed to take a course which starts from basics and covers MS
Excel in detail as Excel is very essential for Financial Modeling so there is no escape and this
part should be strong If you want to check out one such Online Course offered by us which
covers everything exhaustively then you can

Excel financial modelling formulas

Learn about all the most helpful Excel formulas in financial modelling: for free.

10 minutes a day on Excel financial modelling formulas

This program covers all the formulas attendees on our financial modelling course training ask
about and find the most useful.

The material is extracted from our regular financial modelling training and is well proven with
delegates taking the course.

Excel has hundreds of formulas on offer. That can present a bit of a challenge: you need to
become fluent in the formulas that are going to be most helpful in financial modelling.

We think that, by sending you one email a day for a month, in just ten minutes a day we can
check that youre on top of critical Excel financial modelling formulas.
Learn Excel modelling formulas now for free
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Get the most important Excel formulas here

What we cover on the course: building your Excel survival toolkit

To start with we build you an Excel modelling survival toolkit (note, at this stage were assuming
you can do a very few things like breathe, strap on a back pack, apply your own camouflage
paint, build a Sum function and press F1 for Excel help). Beyond that we want to make sure
youre totally on top of some of the Excel functionality we would regard as absolutely essential
in financial modelling:

1. If formulas. In the first days lesson we look at the If formula. We construct an

embedded/ nested If formula that could be used in a balanced scorecard management
report: coding results Red, Amber or Green. We also cover the importance of the
insert formula shortcut because thats your pathway to any Excel formula you might be a
bit unsure about.

2. Vlookup. So often in Excel modelling you need to pick out data from a table, so we
make sure youve got at least one data picking solution in your survival toolkit. To start
we make sure youre completely comfortable with Excels Vlookup formula one of the
trickier functions to put together.

3. Goalseek. Next we look at iterating with a model. In modelling youll want to vary an
input to see the impact on an output. Excels goal seek will help you with that. We think
its an essential tool in Excel financial modelling so we just make sure you know about it.

Could I really do all my modelling with just that?

Well, maybe not, but youd be pretty close to surviving! With Shift F3 for insert function,
F1 beyond that for Excel help, summing up (Alt = is the shortcut), If formulas, a data
picking solution and some judicious use of goalseek youd be getting most of the way there most
of the time and youd have almost enough theoretically to start carving out a career in corporate
finance. But of course theres more to modelling than that! To start we just want to make sure
youre totally on top of some of the basics that youll use most regularly.
As our course program progresses we gradually start to get into more advanced modelling
territory. Not all of it youll use every day but its interesting to take a quick look at other
formulas youll also find useful. Just so you know about them and have some clear reference
examples for the future.

Slowly moving into more advanced territory

Along with the must haves weve got a list of lessons covering useful Excel formulas likely to
help you address specific financial modelling challenges:

4. Conditional formatting. In this lesson we look at layering multiple conditional formats

into our previoulsy-created balanced scorecard. Instead of just using If formulas to
display the text Red, Green etc, we use Excels conditional formatting actually to
colour those cells. Conditional formatting seems to have become overly complicated in
the later versions of Excel so today we concentrate on helping you navigate that
complexity quickly.

5. Choose. By now weve looked at Vlookup but Excel provides us with multiple other
data picking solutions. Some will provide a shorter neater solution depending on the
exact problem youre trying to solve. On the course today we look at Excels Choose
formula. It provides a short neat solution to data picking when youve got a small data
set. Its so short and neat we think youll grow to love it. When you have a small data set,
we think the opportunity to use Choose will feel as good as getting a free lunch!

6. Drop-down boxes. Have you seen those groovy graphical combo boxes or drop down
boxes in Excel? They dont actually do anything clever in Excel all they do is change a
very simple input. But they can make your model much more user friendly and make you
look like a modelling expert pretty quickly. On todays course lesson we look at combo
boxes, including a few advanced applications you may not have seen before.

7. Cell names. Today we look at cell names in Excel (Ctrl F3 and Ctrl Shift F3
are the keyboard shortcuts). We have a few serious warnings around names. Some people
like them so we feel we have to make you aware of the pitfalls.

8. Scenario manager. When we looked at goal seek we found we could access it from the
Data tab, then Data Tools, What If Analysis. On todays course lesson we take a
quick look at something else you might have noticed sitting under that menu item:
Excels scenario manager. We will tell you why were not great fans of it but it regularly
gets questions on our financial modelling course training so we think it would be wrong
to skip it here.

9. Model switching. In todays course lesson we give you some clues about switching on
and off large swathes of your model. Today is all about model switching.
10. Custom formats. Next we look at custom formatting in Excel (Ctrl 1). We help
you get that (bracket) formatting into Excel that accountants seem so fond of. (Bracket)
formatting is not on the list of Excels standard formats so you need to be able to
customise/ build one of your own. If you want to keep the accountants in your life happy.

11. Index. Today we add Excels Index formula to our list of other data picking solutions
(on top of the standard Vlookup and then Choose for a small data set). Some of our
financial modelling course attendees prefer Index because they like the logic and
reportedly it chews less Excel memory.

12. TRUE/FALSE checks. Did you know you can shortcut a full If formula? After todays
lesson we think you may decide to promise yourself never to use a full If formula again.
If you take that pledge, your models will suddenly be looking like theyve been created
by someone who really knows what they are doing. Todays course lesson is all about
Excels TRUE/ FALSE checks as an alternative to the standard If formula.

13. Data validation. Today its data validation: forcing users to enter particular values in a
spreadsheet. Weve seen data validation used in the spreadsheet that goes around the
office ahead of the Christmas dinner. Your choices are going to be Turkey (that has to
be on there), Nut roast (there has to be a vegetarian option but its never sounding
that exciting is it?) and Salmon (for everyone else). Nobodys ever going to be allowed
to put I want Beef Wellington against their name in the spreadsheet now are they?
Thats the kind of thing data validation is designed to help us with: forcing users to enter
a limited range of inputs. But weve regularly seen people apply data validation to
scenario switching in their modelling. We prefer the drop-down boxes (for good reasons
that we happily explain) but, because the two look very similar, we need to prepare you
for picking up someone elses model the one thats using data validation to switch
scenarios.

14. Password protection. You may feel youre surrounded by idiots: the kind that expect
to be able to order Beef Wellington for their Christmas dinner. We understand we feel
your pain. Along with data validation, password protecting a spreadsheet is something
you could find helpful. What that will do is stop other users making changes e.g. to
formulas in the Excel model youre circulating. Theyll only be able to change e.g. the
input cells you want them to change.

15. The Round formula. Do you have other issues with your colleagues? Are there a few
around who might see 1.5+2.4=3.8 in a spreadsheet, fail to realise that Excel stores
numbers to lots of decimal points out on the right hand side, and all were seeing is the
impact of rounding within Excel? Is there a risk that a colleague or client might get
themselves distracted by your apparent inability to be able to add correctly? Excels
Round formula is going to be really helpful for dealing with the obsessive compulsives in
your life. The ones who need to have all the pictures straight in the office, the mugs
stacked neatly in even numbers in the kitchen, and all the key totals looking like they add
up in the Excel spreadsheet.

16. Iferror/ Iserror. In todays lesson we look at using Excels Iserror and Iferror functions
to identify and reduce modelling errors.

17. Sumif, Sumifs and Sumproduct. Today we complete our list of favourite data picking
solutions, tackling some that can also help you add up/ consolidate data. This course
lesson covers Sumif and its bigger stronger beefier cousin Sumifs. We also look at the
Sumproduct formula which we think is the winner amongst all of them. It picks data. It
amalgamates data. It amalgamates over multiple rows and columns. It really is totally
awesome but youll get little guidance from Excels own F1 help on its super-powers.

18. Array formulas. Is there a chance that you could ever want to do two things at once
(in an Excel model)? In the previous lesson we met a couple of two-in one-formulas.
Sumifs kind-of combines an If formula with adding up. Sumproduct multiplies and adds
up. If you like the idea of a two-for-one special you might want to check out Excel array
formulas. Theyre probably one of the weirdest formulas youll ever see in Excel with
funny { } squiggly brackets at each end. Most people meet them first in someone elses
model when they interrogate the formula (F2) and then press Enter. The {brackets}
disappear and the formula and model break. Today youll find that Ctrl Shift Enter
is what you need to press to generate the brackets and make the array formulas work.

19. Data tables. Our investment banking delegates seem to love Excel data tables with
good reason. They help you with your sensitivity analysis, automatically creating the
table that shows the impact of a first variable (across the top) and a second key variable
(down the side) on the output (in the middle). In todays course lesson we also look at the
potential to use a special case single variable data table to display the results of our
scenario analysis.

20. Excel date formulas. Usually the top of our model will have date headings running
across the top of it. Today we focus on rolling dates forward in the model. We come out
with a strong recommendation on the EOMonth formula.

21. Escalation factors. In a large project model we might want to escalate revenues up by
e.g. a % contracted growth rate and expenses e.g. by % inflation. Todays course lesson
looks at pitfalls in modelling escalation factors.

22. 3D referencing. Excels 3D referencing enables you to play a cool trick when totalling
data across multiple tabs. You wont use it very often but youll love the occasional
opportunity to use it: itll be a good day at the office that one.

23. The watch window. Excels watch window helps you keep key results in view so that
you get the earliest possible notice when your model falls over with #REF! errors. Cool.
24. Excel macros. If youre unfamiliar with them, today we get you started with Excel
macros.

25. Deliberate circular references. In this lesson were preparing you for a chance
encounter with a Dark Lord of financial modelling: the one who is in the habit of leaving
deliberate circular references in a model. The Dark Lord expects the model to work (even
though hes put a circular reference in it), and expects you to know what to do with it.
This could be scary.

26. Max/ Min formulas. Weve already shown you how to use TRUE/ FALSE checks as
an alternative to the standard If formula, making you look like a modelling pro. Today we
add to that the alternative of the Min or Max formula.

27. Modelling tax losses. At one level todays just an example of how you can apply Min/
Max formulas in the place of the If formula. At another its our little gift to you: a record
of how you can bank tax losses without getting yourself tied in complex knots. You can
save it for later.

28. Pivot tables. Today is a quick lesson, just checking that you know how to create an
Excel pivot table. We also make sure youre aware of the alternatives that Excels
standard formulas provide us with that you dont always feel obliged to jump in and
create a huge table manipulating a lot of data.

29. Edit links. Now were easing off with a short lesson on managing Excels edit links
settings. Youre most likely to encounter this when you get someone elses model and
Excel warns you that the model contains broken links. We also re-iterate one of warnings
on names because names can end up acting like broken links in a model. Ctrl F3 will
tell you whether youve got that kind of problem.

30. Modelling course conclusion. Today we finish by congratulating you on making it

through the program and pointing you to other online resources weve prepared. We have
other free resources that we think youll find useful in your financial modelling work. We
also mention that wed love to see you on a live taught financial modelling program (of
course youd expect that!) where you get to wire up a real model using some of these
formulas. But there really is no catch. Other than being forced to tolerate a quirky take on
Excel formulas (obsessive-compulsive bosses? Dark Lords? Really?!) all of the online
financial modelling course material you get here carries no cost: its totally free.