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Module I Agenda
Financial Modeling & Why Excel Mastering the building blocks
Hygiene factors Key Board shortcuts Formatting Formulae and Functions Specialised Excel Tools What-If Analysis
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Financial Modeling
What is a financial model?
Represents the inter-relationship among financial variables in mathematical terms
Financial Modeling
Introducing Excel
Menu Bar Tool Bar
Sheets Tab
W/book W/sheet
Anything default that has to be changed Excel 2003: Tools Options; Excel 2007: Excel Options
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It is not necessary to master the shortcuts. But, knowing them helps save a lot of time and effort.
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Under Edit Paste Special (2003) and Paste Paste Special, several paste options are provided
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Row height and Column widths can either be manually adjusted or optimised with a mouse click Multiple cells can be selected by clicking cells or range along with holding the Shift key
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Ctrl + Shift + Page Up or Page Down helps in selecting multiple sheets. Could be done easily with a mouse.
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GoTo function has far wider application than a simple tool to go to a particular cell
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Customising Excel You can customise the Excel screen Tools Options provide the needed tools
Changing standard number of sheets Changing font and font size Show/Hide Gridlines, Row/Column headers, scrolls Copying colour pattern from other sheets Calculation mode: Manual / Automatic
Under Excel 2007, part of these options reside under Excel Options, partly under various Menu items
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Exercise 1
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Format the s/sheet in the manner as you deem appropriate Take care of the following:
Major Blocks like Total Assets and Liabilities stand out Various levels of information (categories and sub-categories) within Assets and Liabilities are easy to distinguish Decimal point presentation consistent Borders used to separate years of data Colours used consistently and legibly Numbering schemeQuantitative Finance Indian Institute of for easy reading of the data
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and Functions
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Logical functions
IF (logical, True, False) Logical operators: =, <, >, <> Nested IF AND, OR, NOT
Exercise 2
Statistical functions
Average, Median, Mode, Max and Min Count, Counta, Countblank, Countif Stdev and Var Sum, Sumif Rank, Rand Normdist, Norminv Covar, Correl
Exercise 3
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functions
PV, FV, PMT, NPER, RATE NPV, IRR More to follow when we discuss bond valuation
Exercise 4
functions
Round, Roundup, Rounddown, Mround Ceiling, Floor Abs, Quotient, Mod, Sumproduct, Sqrt
Exercise 5
Lookup functions
Vlookup, Hlookup Index, match Row, column Indirect, address
Exercise 6
Exercise 7
Text functions
Left, Right, Mid, Len Upper, Lower, Proper Find Trunc, Concatenate, Trim
Exercise 8
Information functions
Cell (info type, reference cell)
Exercise 6
No need to define and customise range every time Remains set for a workbook
Data validation
Helps to control the nature of values that a cell can take Most important use comes with the use of list, when we want values to be picked from a list
Exercise 9
Conditional Formatting
Purpose is what the name indicates Helps to identify outliers and those cells which you need to pay attention to Lets look at Exercise 9 again to understand it
We want to show growth below 10% in red We want to show a decline in margins in red
Exercise 9
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Exercise 10
Lets say, we would like to chart the close price of the index over the last 30 days Lets say we give the decision on no. of days to the user
User Forms
Aids in presenting options to users attractively Lets look at Exercise 10 again
Exercise 10
Lets say we would provide users option button whether to show open, close, high or low price Next, we would provide a spinner for no. of days A check box to decide whether to include turnover data as well
In Excel 2007, User forms are located under Excel Options Popular tab Show Developer Tab
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Exercise 11
Lets say, we want to see how profits vary with change in selling price and variable cost (Set I) Given the current loan structure, a loan taker would like to know how will his EMI change with a change in interest rate and tenor (Set II)
Exercise 11
Lets say, we want to see at what selling price would the seller breakeven (Set I) Assume the loan taker has an option of entering into a fixed rate loan of a flexible tenor and he would like to make an EMI payment of Rs.10000. What would be the optimal tenor?
Exercise 11
Lets say the best case scenario of interest rate be 6% and worst case be 8%, how will the EMIs vary (Set II) Lets say I believe the best case scenario for SP would be Rs.120, cost would be 60% of SP. Worst case would be Rs.90 and cost at 80% of SP, how would the profits look like (Set I)
Exercise 11
Lets say, the number of units sold is inversely proportional to SP. A 10% increase in SP would lead to 8% fall in demand. Assume the maximum production capacity is for 2000 units. What should be the SP to maximise profits? (Set I)
In Excel 2007, Solver Add-in needs to be added using Excel Options Add-Ins Manage Excel Add-Ins
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Thank You