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Top 15 Financial Functions in Excel
Top 15 Financial Functions in Excel
Microsoft Excel is the most important tool of Investment Bankers and Financial Analysts. They spent more than 70% of the time preparing
Excel Models, formulating Assumptions, Valuations, Calculations, Graphs, etc. It is safe to assume that Investment bankers are masters in
excel shortcuts and formulas. Though there are more than 50+ Financial Functions in Excel, here is the list of Top 15 financial functions in
excel that are most frequently used in practical situations.
#1 – Future Value (FV): Financial Function in Excel
If you want to find out the future value of a particular investment which has a constant interest rate and periodic payment, use the
following formula –
FV Example
A has invested the US $100 in 2016. The payment has been made yearly. The interest rate is 10% p.a. What would be the FV in 2019?
= US $129.79
This financial function is important when you need to calculate the future value with the variable interest rate. Have a look at the function
below –
M has invested the US $100 at the end of 2016. It is expected that the interest rate will change every year. In 2017, 2018 & 2019, the interest
rates would be 4%, 6% & 5% respectively. What would be the FV in 2019?
= US $115.752
If you know how to calculate FV, it’s easier for you to find out PV. Here’s how –
PV Example:
The future value of an investment in the US $100 in 2019. The payment has been made yearly. The interest rate is 10% p.a. What would be
the PV as of now?
= PV (10%, 3, 1, – 100)
= US $72.64
NPV Example
Details In US $
Rate of Discount 5%
= US $240.87
This financial function is similar to the NPV with a twist. Here the payment and income are not periodic. Rather specific dates are
mentioned for each payment and income. Here’s how we will calculate it –
XNPV Example
Details In US $ Dates
Rate of Discount 5%
= US$289.90
PMT Example
The US $1000 needs to be paid in full in 3 years. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PMT.
= – 402.11
It is another version of PMT. The only difference is this – PPMT calculates payment on principal with a constant interest rate and constant
periodic payments. Here’s how to calculate PPMT –
PPMT Example
The US $1000 needs to be paid in full in 3 years. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PPMT
in the first year and second year.
1st year,
= US $-302.11
2nd year,
=PPMT (10%, 2, 3, 1000)
= US $-332.33
To understand whether any new project or investment is profitable or not, the firm uses IRR. If IRR is more than the hurdle
rate (acceptable rate/ average cost of capital), then it’s profitable for the firm and vice-versa. Let’s have a look, how we find out IRR in
excel –
Details In US $
= 15%
The Modified Internal Rate of Return is one step ahead of the Internal Rate of Return. MIRR signifies that the investment is profitable and
is used in business. MIRR is calculated by assuming NPV as zero. Here’s how to calculate MIRR in excel –
MIRR Example
Here is a series of data from which we need to find MIRR –
Details In US $
= 13%
#10 – XIRR: Financial Function in Excel
Here we need to find out IRR, which has specific dates of cash flow. That’s the only difference between IRR and XIRR. Have a look at how
to calculate XIRR in excel financial function –
XIRR Example
Here is a series of data from which we need to find XIRR –
Details In US $ Dates
= 24%
It is simply the number of periods one requires to pay off the loan. Let’s see how we can calculate NPER in excel –
NPER Example
US $200 is paid per year for a loan of US $1000. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the NPER.
= 7.27 years
Through the RATE function in excel, we can calculate the interest rate needed to pay off the loan in full for a given period of time. Let’s
have a look at how to calculate RATE financial function in excel –
RATE Example
US $200 is paid per year for a loan of US $1000 for 6 years, and the payment needs to be done yearly. Find out the RATE.
Solution:
= 5%
Through the EFFECT function, we can understand the effective annual interest rate. When we have the nominal interest rate and the
number of compounding per year, it becomes easy to find out the effective rate. Let’s have a look at how to calculate EFFECT financial
function in excel –
EFFECT = (Nominal_Rate, NPERY)
EFFECT Example
Payment needs to be paid with a nominal interest rate of 12% when the number of compounding per year is 12.
Solution:
= 12.68%
When we have an effective annual rate and the number of compounding periods per year, we can calculate the NOMINAL rate for the year.
Let’s have a look at how to do it in excel –
NOMINAL = (Effect_Rate, NPERY)
NOMINAL Example
Payment needs to be paid with an effective interest rate or annual equivalent rate of 12% when the number of compounding per year is 12.
Solution:
= 11.39%
Through the SLN function, we can calculate depreciation via a straight-line method. In excel, we will look at SLN financial function as
follows –
SLN = (Cost, Salvage, Life)
SLN Example
The initial cost of machinery is US $5000. It has been depreciated in the Straight Line Method. The machinery was used for 10 years, and
now the salvage value of the machinery is the US $300. Find depreciation charged per year.
Solution: