Everand Logo

Welcome to Everand!

  • Discover millions of ebooks, audiobooks, and so much more with a free trial

    Only $11.99/month after trial. Cancel anytime.

    Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel
    Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel
    Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel
    Ebook289 pages2 hours

    Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel

    By Palani Murugappan

    ()

    Read preview

    About this ebook

    Create an inventory system!

    Calculate loan repayments!

    Handle a production’s limiting factors successfully!

    Work out customers’ profitability!

    Yes, most of the above and much more can be achieved in Microsoft Excel if you understand some basic concepts of financial modelling and analysis.

    This book was written to help any users wanting to have a clear understanding of how Excel can help to perform some aspects of financial modelling and analysis using some of its built-in financial and logical functions. It goes further by elaborating detail exercises on the above. The book introduces the basic concepts of balance sheet, income statement and cash flow and builds the relevant models.

    Many books have been written on Excel. However, this book explains some advanced techniques for sensitivity analysis and features in a rather simplified manner with plenty of screen captures wherever possible. New users and existing users on Excel will find this book handy.
    LanguageEnglish
    PublisherLulu.com
    Release dateJul 16, 2015
    ISBN9781329389755
    Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel

    Read more from Palani Murugappan

    Related to Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel

    Related ebooks

    Business For You

    View More
    View More

    Related podcast episodes

    Related articles

    • Article

      Biz Start-Up Guide: Step 3 Make Plans Think Through Important Aspects of Your Future Home Business

      Sep 29, 2022

      Order at https://homebusinessmag.com/home-based-business-guide/ You know what type of business you want to go into, and that's a great start. You probably can't wait to begin. But before you do, it's essential to make plans. You need to think through

      11 min read

    • Article

      HOW TO Manage Your Money As A Freelancer

      Sep 13, 2020

      The world is changing and the traditional commute to and from an office for a 9am to 5pm day is slowly falling away. More people are exploring their talents and skills that are unrelated to traditional employment, and they must find time to acquaint

      4 min read

    • Article

      The Hidden Cost Of SBC

      Sep 23, 2022

      Many tech companies issue stock to employees to give them a stake in the performance of the company. This has been highly effective in a tech bull market and a key incentive to employees. But stock-based compensation (SBC) presents three problems for

      2 min read

    • Article

      A Business Wealth Creation Roadmap

      Aug 1, 2022

      A Business Wealth Creation Roadmap
      5 min read

    • Article

      4 Potential Problems with Equity Compensation, and How to Solve Them

      May 1, 2021

      Non-cash compensation might not sound like a very good deal for you as an employee — but depending on the type, it can actually provide quite a boost to your net worth over time. Equity compensation is a type of “non-cash” comp that your company may

      4 min read

    • Article

      How to Automate Your Savings in 6 Easy Steps

      Nov 19, 2020

      Finding it a challenge to set aside savings on a consistent basis? Or maybe you just want to simplify how you save for the future. Whatever your goals, today’s digital tools make it easy to create and automate a personal savings program. Automation c

      4 min read

    • Article

      Warning: Your Business Is Not a Retirement Fund!

      Dec 11, 2021

      I often receive inquiries from business owners seeking to increase their company’s profitability, margin, etc. Many of them view the business as their retirement plan. Although it’s an asset you could use to fund your retirement, I believe focusing o

      5 min read

    • Article

      For Sustainable Retirement Income, You Need These 5 Building Blocks

      Jun 9, 2022

      Sometimes we have all the elements for a great retirement, but until we put them together the right way, we don’t get the result we want. I call it the H2O problem. We have plenty of oxygen in the atmosphere. Likewise, hydrogen. It seems simple, but

      2 min read

    • Article

      Here's How I Size Up a Stock

      Jun 7, 2018

      One of the challenges of writing a monthly column is knowing when to revisit a topic I've covered before. Kiplinger's readers made that decision easier this month after more than a dozen of you wrote to tell me you were confused about my favorite for

      2 min read

    • Article

      Keep Control Of Your Cash

      Dec 15, 2023

      Keep Control Of Your Cash
      2 min read

    • Article

      5 Steps To Building Your Wealth

      Oct 18, 2019

      i recently got home from work to find my eldest daughter in tears. She had a massive university assignment due and feared that she wouldn’t be able to finish in time. We’ve probably all been there before. Whether it’s an assignment, a large sports ev

      3 min read

    • Article

      How to Spot (and Squash) Nasty Fees That Hide in Your Investments

      Jan 8, 2021

      It’s a new year, and now is the time to compile and look at all your year-end investment statements. You’re likely pretty happy to see some double-digit gains thanks to the stock market (especially tech stocks) hitting record highs. The statements th

      5 min read

    • Article

      Get Off To A Smart Start

      Feb 2, 2022

      Get Off To A Smart Start
      8 min read

    • Article

      Take Charge Of Your Future

      Jul 1, 2020

      Take Charge Of Your Future
      5 min read

    • Article

      How Fixed Deferred Annuities Can Complete Your Retirement Income Strategy

      Aug 31, 2021

      Most fixed annuities are designed to provide safety and secure your assets and income for retirement. When financial markets are tanking, whether in the short or long term, these annuities provide guaranteed stability along with tax advantages. Annui

      5 min read

    • Article

      Combing Through The Financial Results

      Oct 8, 2021

      results season for the period ending June has seen the JSE’s stock exchange news service (SENS) flooded with companies reporting lately. So, as is usual this time of the year, I’ve been reading balance sheets, income statements and cash flow statemen

      2 min read

    • Article

      Have Equity Compensation? Strategies to Handle Stock Market Volatility

      Nov 20, 2020

      If you’re an investor in the stock market, it’s likely that you have experience with volatility, which often can strike unexpectedly.  However, if you are the owner or recipient of equity compensation and employee stock options, you may not realize t

      3 min read

    • Article

      Realizing Profit Potential

      Oct 18, 2019

      Realizing Profit Potential
      4 min read

    • Article

      Money Matters

      Mar 21, 2024

      Money Matters
      5 min read

    • Article

      What to Know Before Exercising Your Pre-IPO Stock Options

      Feb 26, 2021

      First of all, if you are reading this for personal financial reasons, then congratulations. As a recipient of employer stock options, you have the opportunity to own shares of your company. Stock options can be a powerful wealth-builder. If granted,

      4 min read

    Related categories

    Reviews for Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel

    0 ratings

    0 ratings0 reviews

    What did you think?

    Tap to rate

    Review must be at least 10 words

      Book preview

      Financial Modelling and Analysis Using Microsoft Excel - For Non Finance Personnel - Palani Murugappan

      cover

      PREFACE

      Hi all !!

      Welcome to Financial Modelling and Analysis using Microsoft Excel for non-finance personnel!

      Most of you probably know how to use Excel. How many can handle the basic concepts of financial statements, let alone modelling? This is the book for you if you want to learn the the basics of finance using Excel functions.

      This book was written to help any users wanting to have a clear understanding of how Excel can help to perform some aspects of financial modelling and analysis using some of its built-in financial and logical functions. It goes further by elaborating detail exercises on the above. The book introduces the basic concepts of balance sheet, income statement and cash flow and builds the relevant models.

      Many books have been written on Excel. However, this book explains some advanced techniques for sensitivity analysis and features in a rather simplified manner with plenty of screen captures wherever possible. New users and existing users on Excel will find this book handy.

      So, why wait? Get a head start with Microsoft Excel’s financial functions and create your desired models with ease.

      Palani Murugappan

      Email : palani12@yahoo.com

      Whom this book is for

      Many books have been written on financial modelling. However, as a corporate trainer myself, I have decided to write this book to cater for the non-finance personnel who may want to know the application of financial modelling using Microsoft Excel (Excel for short). This book is also catered for students or anyone wanting to learn more on the many financial functions available in Excel to perform the relevant financial modelling exercises.

      Introduction to financial modelling

      Many of us have heard of the word modeling especially in the context of data modeling and financial modeling. What does the word model mean? In simple terms, a model represents a scenario of the real application done in a confined manner. For example, if a group of engineers were to build a bridge, they would sit together and build a model of it first to see if it would fit in the actual place. This model will help them understand many factors such as wind, tension, stress, maximum load, etc. Most of the models are done in labs or a confined area.

      In the financial world, the financial modeling refers to models that are used to predict an outcome of financial performance. For example, investing in a property and expecting it to appreciate over a number of years (assuming no natural disaster happens during this period which may then lower the price of property). This is a sample financial model.

      It is important to remember that when reading a pictorial representation of any model, it should be read from left to right. Generally, time periods are on the X-axis moving from current (left) to future (right).

      When designing a model, many often wonder how long one should design the model for i.e. short term or long term. This would really depend on the given scenario.

      For example, if you are looking at a company’s cash flow, then you would ideally look at the next 12 months. However, if your project involves growing trees for timber, then you may need to stretch your model to something like 30 years (the average duration required for trees to grow to its peak).

      Note that when you use a model to predict the company’s cash flow for 5 years, the chances of it being accurate or near accurate is unlikely as no one can predict this! There are just too many external factors that can affect these projections such as the local and global marketing conditions, market trends, acceptance level of product/services, life cycle of product/services, competition from overseas, etc.

      When you plan out your model, it could be based on months, quarters, or years. You should decide what is best. For example, do not make a model with a monthly prediction for 10 years. It would be better to use yearly predictions instead.

      Generally speaking, do not make a weekly model for more than a year; monthly model beyond 3 years; and quarterly model beyond 5 years.

      On a personal basis, I have always used a monthly model for most of my predictions (generally one year and more).

      Analyzing a simple financial model

      Now that you have been briefed on what a financial model is, let us have a look at a simple financial model. The screen capture shows the income (or revenue) predicted for the first 5 years of operations, its related expenses and profit (in value and percentage).

      Let us analyze the above financial model. The income row indicates that income increases gradually over the 5 years. However, the expense also increases over the years. The company maintains a reasonable profit throughout the 5 years. The last row indicates that profit (in percentage) is actually decreasing over the 5 years.

      The formula for the above is as follows (accomplished by pressing the Ctrl + ~ keys. Pressing the same keys once more will remove the formulas from being displayed).

      If you were heading the above company, what would you do to increase the profit margins further?

      Before proceeding any further, you need to understand more financial statements and how to read and interpret them before you can come to any understanding on some cost cutting measures to improve profitability.

      Basic financial statements

      There are three basic financial statements. These are:

      Balance sheet

      Income statement (or sometimes known as profit and loss statement)

      Cash flow statement

      To help understand your company’s financial statement better, it would help if you had some understanding of the above three to create a proper financial model.

      Balance sheet

      The balance sheet indicates the financial position of a company at a specific moment in time. It tells what you own and what you owe on a specific date.  It should be noted that the balance sheet of a company changes from day to day.

      A balance sheet is usually prepared at least once a year to show to all the shareholders and to the public (if it is a public listed company).

      As companies operate on a 12 month fiscal year period, they usually prepare the financial statements at the end of this fiscal year. The financial statements are prepared by accountants and require to be audited (for a private limited and public company).

      The balance sheet is prepared at the end of the fiscal year and sometimes can take months to prepare (quite often outdated when it is ready!).

      A balance sheet has three basic components:

      Assets (anything and everything physical the company owns)

      Liabilities (amount the company owes to others such as banks or other financial establishments)

      Equity (amount the company owes to the investors based on their capital injected)

      You can relate all the three basic components as follows:

      The formula above helps anyone understand how the three components are related. For example, if you decide to purchase a property worth $500,000 (Asset), you have decided to pay a down payment (or initial investment) of $100,000 (Equity). The balance of payment to purchase the property will come in the form of a loan from the bank, for example. In the above, the balance of $400,000 will come from the bank as a loan. This is the known as the liability as you owe this amount to the bank (including the interest and other fees that the bank will impose on you).

      Note that in any balance sheet, the Total assets (commonly displayed on the left side) must always equal to the Owner’s equity plus the Liabilities (typically shown on the right side of the equation).

      Let us analyze another example as below.

      In the ABC Company above, the assets includes what the company owns. The Accounts Receivables arise when the company has sold something on credit i.e. goods has been disbursed but no payment has been received at the point of delivery. Companies usually give credit terms such as 14, 30, 45 or 60 days to make the payment (may include interest charges too).

      The value of $200,000 above in the ABC Company indicates that the company has the right to collect $200,000 from previous credit sales which are still pending. This value also indicates that ABC Company has the legal claim to the $200,000 of Accounts Receivables.

      A point to note there is that if the payment is still not collected after the credit term given, it may be difficult to collect it at a later stage. So, in this case, some companies do provide a provision for bad debts which is Accounts Receivables that are not collectable after a given period (usually written off).

      Some examples of assets in ABC Company may include the following:

      Buildings

      Land

      Investments in stock and bonds of other companies

      Inventory

      Prepaid Insurance (usually paid in advance for a year)

      Copyrights

      Patents

      What then are liabilities? A liability occurs when the company owes something to another. Usually it is monetary based (money is involved).

      For example, should ABC Company decide to expand its plant, it may need to borrow money from a financial institute. If the loan is approved, ABC Company owes the financial institute the principal amount borrowed plus the interest and other charges included. As long as the loan has not been paid, it is a liability to it.

      In the ABC Company example above, the liabilities include Accounts Payable i.e. what the company owes to others which it could have bought on credit. Even though no cash has been paid in advance, the items received were ordered and ABC Company has a legal obligation to pay for it. This obligation is listed as a liability.

      Other examples of liabilities may include:

      Notes Payable (these are more formal than accounts

      payable and typically includes interest charges)

      Mortgage Payable

      Interest Payable

      Salaries Payable (after completion of work by employees

      and contractual staff)

      Lease Obligations

      Note that whenever you see the word PAYABLE, the item is more than likely to be a liability.

      The Owner’s Equity in ABC Company is the Total Assets less Total Liabilities. For a single proprietorship you typically have only one Capital account. 

      An organization with three partners would have a separate Capital account for each partner.   A corporation often has three capital accounts:

      Common Stock,

      Enjoying the preview?
      Page 1 of 1