People use spreadsheets for all kinds of reasons. Whether it is general budgeting or creating a financial model in excel, you’ll find their use common. With the wide use of excel, there must be a few things that stand out with its use. Can you guess what those are? One of the most prominent features of using excel is the formulas it has to offer.
When you go about creating your financial model in excel, you will need a multitude of formulas. These will ensure that you get your calculations done automatically and effectively. Here, you will find out the importance of formulas and ten advanced formulas essential for financial modeling.
Financial Model In Excel: The Importance Of Formulas
Before we move on to the ten advanced formulas for a financial model in excel, let’s take a look at why they’re necessary.
Makes Calculations Easier For Your Financial Model
Using advanced calculations and formulas in your financial model in excel makes things easier for you. No longer will you need to find values yourself or manually make calculations. All you need is to apply the formula, add the relevant cell numbers, and you’re good to go!
Saves Time To Create Your Financial Model
The ultimate reason you want to use advanced formulas for your financial model in excel is to save time. Just like it makes calculation easier, it also saves a lot of time at your end. You will not be required to do massive calculations or detailed conditioning on your own.
Offers Accurate Results For Your Financial Model
Lastly and perhaps more importantly, you end up with accurate results. With advanced formulas in place, you will find that you get the right results. Whether you’re calculating something or adding some links to your financial model in excel, you will find this effective.
10 Advanced Formulas For Your Financial Model In Excel
Here you will find the top 10 formulas for your financial model in excel. You will surely make great use of them throughout. If not you, then your chief financial officer will always talk about these formulas. Now, you can understand what they are as well!
IF Function With And/or
When you create your financial model in excel, you will understand just how necessary the IF function is. But it can get quite confusing if you’re required to add too many conditions. Here is where you can add the And/or function to help make things easier for you. Combined with the IF function, these functions will surely offer you a quick way to create more advanced formulas for your financial model in excel.
Next, we have the Index Match that combines the two functions individually known as Index and Match. But what does the Index Match do, and why is it relevant for your financial model in excel? Well, this is a much more advanced version of VLOOKUP.
This formula will help you return to the cell that is present in a table. You set certain limitations when it comes to the tables. You set the limits within the horizontal and vertical cell numbers. Doing this helps you quickly get to the value that you’re looking for in a table.
Offset In Combination With Sum To Average
The Offset formula doesn’t hold too much importance on its own as there’s not much use to it. However, by combining it SUM or AVERAGE, you will find that this can be extremely helpful with calculations. So, how does it work?
Since all of your values in the Excel financial model are in a line, you only drag and select values in a line when you apply the SUM function. It means picking up random values for your calculations isn’t available. It is where the Offset function comes in. It helps you select random values that you can make calculations.
XNPV And XIRR
When it comes to your financial model in excel, taking out the Net present value (NPV) is essential if you’re going to do the company valuation. It is a step forward after you have forecasted all your financial statements. It helps you get to the endpoint as to where your business stands in terms of value. But the calculation of NPV or IRR (another metric used for projects) isn’t simple.
The formula that Excel offers you is quite amazing since you do not have to do much. It helps you calculate your NPV and IRR while also considering the varying time between the cash flows.
Financial modeling uses a variety of formulas. One of the key formulas is to CHOOSE. So, what does this do? It helps in choosing amongst various assumptions that you have added to your financial model in excel. The result displayed in the cell will show you the solution to which option you’ve selected.
It helps you understand what different assumptions will result and how they might affect your financial model. It is a key formula that you can incorporate, and you will surely find it highly effective to use in your models.
COUNTIF And SUMIF
COUNTIF and SUMIF are both based on criteria. You add the relevant limits through your IF function and combine it with COUNT or SUM, whichever you may need. These help ensure that you can get results subjected to certain conditions and limitations for effective measurement.
LEN and Trim
As you work around your financial model, you will need to ensure that you’re following an organized layout. Here is when the LEN and Trim formulas can help you out. You will find that this helps remove all extra space at the start of your cell or its end. These formulas prove to be beneficial when you’re dealing with unorganized data. So, when you’re done creating your financial model in excel, you end up with a more organized version of it.
You will often need to showcase a certain value in your financial model with a multitude of calculations involved. You will also have a lot of information in the form of tables. Using VLOOKUP, you can add the result to the given cell by getting data from a table through a vertical search.
Through the concatenate formula, you get the option for combining data from two different cells into one. Is this necessary all on its own? Not entirely, but this does play a great part in helping you with your financial model. The more linked your financial model is, the more accurate your results will be.
Max And Min
The Max and Min function helps you assess the largest and smallest values in a particular range. For instance, if you have a sum of various data, these will help you figure the max and min of that particular set of data.
Using Formulas In Your Financial Model
You want to ensure that you have a great command of your excel skills to ensure that you’re using these formulas right. If you are unsure how to make an effective model using these formulas, you should outsource your chief financial officer. This way, you will get experts on board to help you out with this.
We, at Oak Business Consultant, are experts in providing businesses with financial model consultation. Please look at how our CFO service can help you with this highly technical and critical success factor! Not only will your financial model be more robust, but you will get a clear depiction of how these formulas work.
Head to our website at Oak Business Consultant and get yourself a free consultation. Get your company’s financial model details refined by our hands-on expertise.