The Goal Seek function is a great place to kick off the Excel guide for finance.

Goal Seek is a
valuable feature that lets the user back into the value for an unknown variable in an equation. For
example, the typical financing arrangement for leasing a car will usually provide an interest rate
and lease term, such as 6% over 60 months for a car valued at $25,000. Using the PMT formula
in Excel, the estimated payment for these lease terms is $483.32.
Here is the layout of the key variables, as well as the output provided by Goal Seek:
Car Loan Repayment Schedule
Interest Rate

0.06

Loan Duration

60

Total Loan Amount

25000

Payment

$483.32

But let's say you have a few extra dollars and are interested in knowing how long the loan will
last when you spend $500 a month for the same 6% interest rate. Using Goal Seek, here is what
the inputs would look like:

According to Goal Seek, upping the monthly payment slightly would shave more than two
months off the loan duration. Here are the outputs:
Car Loan Repayment Schedule
Interest Rate

0.06

Loan Duration

57.6801385

Total Loan Amount

25000

Payment

$500.00

Guide To Excel For Finance: PV And FV Function

The Present Value or "PV Function" in Excel helps the user determine the current value of a
financial asset. For instance, analysts can value a stock by forecasting its future profits, or cash
flows, and discounting them back to today to get a current, or present value, for the stock. If it
differs much from the value listed in the stock market, it may be either a buy or a sell.
Let's look at an example. Assume a company earns a profit of $100,000 annually over a period of
10 years. The "Type" is a "1" or "0" and details whether the earnings would occur at the
beginning of each year, or end of each year, respectively. If an analyst has a price target of $100
per share, or a $1 million firm value assuming 10,000 shares outstanding, then the estimated
present value of the stock is $29.04. If the current market price is above this level, the stock
would not be worth buying. If it traded at less than $29 per share, then it would be worth an
investment, based off of the inputs the analysts used in his analysis.

FV Function
You may have already noticed that the Future Value or "FV Function" in Excel was part of the
discussion for the analyst valuing the stock, above. If we keep all of the variables the same, but
assume we know the current firm value is $350,000, or $35 per share, then the future value of the
stock in 10 years would be $84.53 per share. Here is what the inputs would look like:

Guide To Excel For Finance: HLookup And VLookup

HLookup
The "HLookup" function in Excel is used to easily find data in a very large database or string of
values housed in an Excel workbook. It stands for horizontal lookup, or looking across a set of
rows in a spreadsheet. The inputs, which are detailed below, include a lookup value
("Lookup_value," or the specific figure you are looking for in a database of figures. The table
array ("Table_array") defines the part of the database you are looking for. The "Row-index_num"
input defines the horizontal row where you are looking to find the data. Finally, "Range_lookup"
will help you find either the exact number you are looking for or the closest number available.
For example, suppose you have three products, each selling for $25, $55 and $75, respectively,
and you record the quantities of each product sold on a spreadsheet. If you want to look up the
amount of items sold for $55, simply input the =hlookup function. Under lookup_value, put the
cell number of the desired figure you are searching for (in this case, $55.) Next, select a table
array, which the function will use to search through your data. Finally, under row-index_num,
insert the row number where the quantity will be found under the price you are searching for. If
done correctly, =hlookup will result in a value of 17.

VLookup
As you might have already guessed, the VLookup function is similar to HLookup, but the data
you are looking for will be vertical, or in a column in Excel. The inputs are actually the same, the
only difference will be how the data in an Excel file database are arranged. Returning to the
above example, the price and quantities would be listed vertically in an Excel column.
Guide To Excel For Finance: Linking Yahoo! Finance and Other Outside Financial Data To
Excel
Today, there is literally a multitude of ways to link external stock market data into Excel. The
point of downloading data is to be able to customize and manipulate it to create your own
formulas, which can be refreshed throughout the day as stocks change in value, or as often as
you would like to refresh the steady stream of market information coming in.
Yahoo! Finance offers the capability to download basic stock price information into Excel. For
users who have created their own portfolios, in Yahoo! Finance there is a link or "Download"
function to save the information into an Excel workbook. Data that can currently be downloaded
includes current stock prices, the daily high and low prices and daily trading volume.
Additionally, it is possible to download just about any data from the Internet into Excel. In Excel
under the "Data" menu, choose to download data from the web or "From Web," which is the
specific menu item in Excel. A separate pop-up will open and allow the input of literally any
website. Returning to Yahoo! Finance and the "Statistics" portion for Textron Corp, yellow areas
show where you can download specific data. Clicking on the download will populate the data
into Excel. Below is a screen shot of information that was downloaded.

Below is the specific table that Excel created:

Market Cap (intraday):

7.51B

Enterprise Value (Sep 3, 2012):

10.75B

Trailing P/E (ttm, intraday):

19.2

Forward P/E (fye Dec 31, 2013):

11.42

PEG Ratio (5 yr expected):

0.4

Price/Sales (ttm):

0.61

Price/Book (mrq):

2.36

Enterprise Value/Revenue (ttm):

0.9

Enterprise Value/EBITDA (ttm):

9.29

Guide To Excel For Finance: Ratio

Common ratios need at least two data points from outside financial sources. As can be seen from
the above download, Yahoo! Finance automatically calculated the price-to-sales and price-tobook ratios for Textron, which are 0.61 and 2.36, respectively. It also provided enterprise-valueto-revenue as well as enterprise-value-to EBITDA ratios.
Users may also want to manually calculate ratios to have a more customized experience. For
instance, the specific ratio the user needs may not be calculated by Yahoo! Finance, or the user
might want to use different time periods in the calculations. For instance, using the trailing
twelve month data versus the last full fiscal year of information can help provide more current
ratios to analyze. Below are other examples of specific ratios and how to calculate them.
P/E Ratio
Using the import from web feature under "Data" in Excel, the following analyst estimate data
from Yahoo! was imported directly to Excel:
Earnings Est

Current Qtr.

Next Qtr.

Current Year

Next Year

12-Sep

12-Dec

12-Dec

13-Dec

0.52

0.6

2.1

2.34

No. of Analysts 14

13

14

15

Low Estimate

0.46

0.53

1.98

2.1

High Estimate

0.56

0.67

2.2

2.6

Year Ago EPS

0.45

0.49

1.31

2.1

Avg. Estimate

At the current share price of $26.72 for Textron, the P/E ratio of 12.72 is calculated as follows in
Excel:

PEG Ratio
Under the "Analyst Estimates" portion of Textron's information in Yahoo! Finance, here is what
we were able to download into Excel using the "From Web" feature
Industr
S&P
y
Sector 500

Growth Est

TXT

Current Qtr.

15.60% 10.30%

55.80% 7.80%

Next Qtr.

22.40% 35.10%

26.10% 18.40%

This Year

60.30% 22.60%

43.70% 8.40%

Next Year

11.40% 16.20%

-6.40% 13.40%

Past 5 Years (per annum)

19.32% N/A

N/A

Next 5 Years (per annum)

31.23
%

15.97%

16.72% 10.04%

Price/Earnings (avg. for comparison

categories)

12.41

9.63

12.57

15.47

PEG Ratio (avg. for comparison categories)

0.4

1.1

1.96

3.84

N/A

As you can see, the PEG ratio is already provided, but can also be calculated by creating a
formula in excel that divides the P/E ratio we calculated above by the projected growth rate of
31.23%. The final result is a PEG ratio of 0.40.
P/S Ratio

As with the PEG ratio, Yahoo! Finance provided the price to sales ratio above; but returning to
the "Analyst Estimates" portion for Textron, below is the information we were able to download:
Current
Qtr.

Next
Qtr.

Current
Year

Next
Year

12-Sep

12-Dec

12-Dec

13-Dec

Avg. Estimate

3.06B

3.50B

12.43B

13.16B

No. of Analysts

11

11

12

13

Low Estimate

3.01B

3.30B

12.15B

12.70B

High Estimate

3.11B

3.67B

12.64B

13.55B

Year Ago Sales

2.81B

3.25B

11.28B

12.43B

Sales Growth
(year/est)

8.80%

7.40%

10.30%

5.80%

Revenue Est

Analysts project full year sales of $12.43 billion for Textron for all of 2012. Creating a cell that
divides the current market capitalization of $7.51 billion (also provided in the previous page) by
sales gets us to a price-to-sales ratio of 0.61, which matches with what Yahoo! has provided.
Dividend Payout Ratio
Yahoo! provides dividend payout information under the "Key Statistics" portion for Textron.
Below is output from the "Dividend & Split" data:
Dividends & Splits
Forward Annual Dividend Rate4:

0.08

Forward Annual Dividend Yield4:

0.30%

Trailing Annual Dividend Yield:

0.08

Trailing Annual Dividend Yield:

0.30%

5 Year Average Dividend Yield:

1.80%

Payout Ratio:

6.00%

Dividend Date:

30-Sep-12

Ex-Dividend Date:

12-Sep-12

Last Split Factor (new per old):

2:01

Last Split Date3:

27-Aug-07

Textron's current annual dividend payout is 8 cents per share. Creating a cell to divide this by the
current share price of $26.72 leads to a current dividend rate of 0.30%. The payout ratio is 8
cents divided by last year's earnings level of $1.31 per share (provided above), which works out
to 6.1%.
EV/EBITDA
Returning one last time to "Key Statistics" in Yahoo! Finance for Textron, the below income
statement data was downloaded into Excel:
Income Statement
Revenue (ttm):

11.94B

Revenue Per Share (ttm):

42.73

Qtrly Revenue Growth (yoy):

10.70%

Gross Profit (ttm):

1.97B

EBITDA (ttm):

1.16B

Net Income Avl to Common (ttm):

412.00M

Diluted EPS (ttm):

1.39

Qtrly Earnings Growth (yoy):

91.10%

Creating a cell that divides Enterprise Value (provided above) of $10.75 billion and dividing it by
EBITDA of $1.16 billion results in an EV-to-EBITDA ratio of 9.3, which agrees with what
Yahoo! also calculated.
Guide To Excel For Finance: Technical Indicators
Microsoft offers sophisticated statistical and engineering analysis capabilities with its Analysis
ToolPak. Stock market charts and related technical indicators can be manipulated using this
service, but there aren't really any specific technical analysis features directly in the Excel
application.
However, there are a number of third-party applications that can be purchased and used as "addins" to supplement Excel's statistical package. Additionally, a number of technical indicators can
be created using basic charts and formulas in Excel. Below is an overview of a number of
primary technical indicators, and how they can be created in Excel.
Pivot Points
Pivot points (PP) are closely related to support and resistance levels, which are covered in more
detail below. In its most simple form, a pivot point is calculated by taking the average of the
high, low, and closing price for a stock or financial asset (below is an example in Excel.) Trading
levels can be easily entered into Excel, or through data downloads from Yahoo! Finance, as

detailed in the previous section. This pivot point forms the basis for support and resistance levels,
as detailed next.

Support and Resistance

Support and resistance levels are used to indicate the points at which a stock might not fall below
or trade above, without a certain amount of difficulty. At these levels, a stock may see some
support, or might break right through it on its way to either new lows or highs.
Using pivot points, the first resistance level is calculated by doubling the pivot point, then
subtracting out the low point of the trading interval used. The first support level also doubles the
pivot point value, but subtracts out the high trading price.
A second level of resistance can be calculated by adding the difference of the high and low trades
to the pivot point. The second support level subtracts the difference of the high and low trades
from the pivot point.
The third level of resistance and support is calculated as follows:
Third resistance = High + 2(PP - Low)
Third support = Low - 2(High - PP)
Pivot Tables
In Excel, Pivot Table reports help summarize, analyze, explore and present basic summary data.
As such, it is customizable to analyzing technical indicators in financial markets. According to
Excel, here is an overview of what they can help a user do:

Query large amounts of data in many user-friendly ways.

Subtotal and aggregate numeric data, summarize data by categories and subcategories
and create custom calculations and formulas.

Expand and collapse levels of data to focus your results and drill down to details from the
summary data for areas of interest to you.

Move rows to columns or columns to rows (or "pivoting") to see different summaries of
the source data.

Filter, sort, group and conditionally format the most useful and interesting subset of data
to enable you to focus on the information that you want.

Present concise, attractive and annotated online or printed reports.

Bollinger Bands
A Bollinger Band is a band plotted two standard deviations away from a simple moving average.
Below is a chart of Bollinger Bands:

A blog providing an overview of technical analysis for beginners recently provided an overview
of how a Bollinger Band can be created in Excel. Below is an overview of the primary inputs:
Column , values and formulas to create:
A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
F = Volumes
Moving Averages
A moving average is used to track trends in the way a stock or financial asset trades. It is
intended to smooth out daily fluctuations and indicate if the asset might be trading above, at or
below certain trends over time.
With existing data that includes a date and daily trading levels, a moving average can be
calculated in Excel. The "AVERAGE" function in Excel will be used to calculate moving
averages for certain intervals, such as a 50-day or 200-day moving average. Then, it can be
determined how the asset is currently trading in relation to this moving average.
Relative Strength Index
The relative strength index, or RSI, can be calculated in Excel via a straightforward cell
calculation. The RSI is a technical momentum indicator that compares the magnitude of recent
gains to recent losses in an attempt to determine overbought and oversold conditions of an
asset.It is calculated using the following formula:
RSI = 100 - 100/(1 + RS*)

RS is equal to the Average of x days' up closes, divided by the Average of x days' down closes.

Guide To Excel For Finance: Valuation Methods

DCF
There is not a specific function to run a full discounted cash flow model in Excel, but there are a
number of tools to make the exercise much more straightforward. As touched upon in the PV and
FV functions on a previous page, it is first necessary to estimate either the present or future value
of a security, then also estimate its future cash flows. Discounting these cash flows back by an
estimated discount rate will provide a future value. Conversely, starting with a present value and
cash flows can allow the user to back into the estimated future value.
In addition to the above two functions, Microsoft has an IRR function that lets you back into the
discount rate, or specifically the internal rate of return, for a series of cash flows. Excel points
out that this is very closely related to the PV function, meaning the same inputs are needed, such
as an initial present value followed by a string of cash flows.
The below details a specific cash flow stream for an investment, starting with an initial
investment of $70.

Dividend Discount Model DDM

The dividend discount model (DDM) represents another approach to estimate the value of a
stock or company by discounting back its estimated future dividend rates. It is very similar to a
DCF, but uses dividends instead of cash flows. A basic model can be built an only requires
knowing the current dividend rate, estimated dividend growth rate, and discount rate, or required
rate of return.

However, there are more complicated ways to look to estimate dividends, including at rates that
change over time. Below is an example of just how complicated the exercise can become:

Residual Income Model (RIM)

Along with the DDM, the residual income model (RIM) is another specialized version of a DC
used to value a firm. In its most basic form, the RIM has an equity charge that is equal to equity
capital multiplied by the cost of equity. This is subtracted from net income to get to a residual
income figure, which is used in lieu of cash flow or dividends, as calculated in the DCF and
DDM models. Residual income figures can easily be modeled and calculated in Excel, but there
are a number of steps to get to these calculations.
Below is an example of a full RIM as created in Excel:
Name of Firm:
Date of Valuation:

NewCo
11/22/10

($ and shares in millions)

Growth Rates:
First 5 years
Years 6 10
After 10 years
Capital Retention Rates:
First 5 years
Years 6 10
After 10 years
Past Year Normalized Earnings
Beginning Book Value of Equity
Expected Rate of Return on Equity
Discount Rate

17.00%
11.00%
4.00%
85.00%
60.00%
20.00%
$ 3,688
$ 20,119
10.00%
10.00%

And below are the outputs, as calculated by the above RIM:

Present Value
Book Value of
Residual
Intrinsic
of Equity Earnings
Value
$ 20,119
$66,090
$ 86,209

IV per
Share
$ 37

Bond Valuation
There are a number of bond valuation functions in Excel. The "PRICE" function returns the
estimated market value of a bond with a $100 face value. Below are the details of the metrics
needed to value such a bond, which happens to be $90.20, based on the inputs provided.

Other bond functions include the ability to calculate a bond's duration, modified duration, yield
to maturity, yield, and discount rate.Basically, there is the ability to solve for any variable when
valuing a bond.
Guide To Excel For Finance: Advanced Calculations
Monte Carlo Simulation
In its most basic form, the Monte Carlo simulation seeks to simulate real-world outcomes by
showing a range of outcomes for a given variable set. For example, in the casino game roulette,

Monte Carlo could simulate where the roulette ball lands for 10 consecutive rounds.
Excel's "RAND" function can generate random numbers in a given sample set. By simply setting
the formula equal to RAND, Excel will generate a random number between 0 and 1. To detail the
range of possible outcomes, Microsoft states that around 25% of the time, a number less than or
equal to 0.25 should occur, and around 20% of the time the number will be at least 0.90, which is
logical and intuitive, given the outcomes are restricted to such a tight range.
Excel offers a number of other ways to simulate random variable outcomes. For instance, the
"NORMINV" function returns the inverse of the normal distribution for a specified mean and
standard deviation.
Black-Scholes Formula
The valuation of stock options can be incredibly complex and math-intensive. Excel offers a
number of ways to price stock options, including the more plain vanilla puts and calls. The
Black-Scholes formula is the most widely adopted measure for valuing an option. Its inputs are
as follows:
S=Today's stock price
t=Duration of the option (in years)
X=Exercise price
r=Annual risk-free rate (This rate is assumed to be continuously compounded.)
=Annual volatility of stock
y=Percentage of stock value paid annually in dividends
Excel doesn't have an actual formula employing Black-Scholes, but there are add-ins, as well as
additional outside files that can be downloaded to help the user calculate the value of a put or call
option.
Time Value of Money
The time value of money generally relates to the concepts of present value and future value, as
explained previously in the PV Functions and FV Functions. The basic forms of the time value of
money, which consists of multiplying an initial present value by an interest rate to get to a future
value, can easily be calculated via a single cell calculation in Excel.
The more complicated theories, including DCF, DDM and RIM, require more sophisticated
modeling techniques in Excel and have also been touched upon in previous pages.