When you decide your financial models are not as good as they should be, should you immediately send your team on an advanced Excel training course? Whilst this is certainly helpful, there's a great deal more to financial modelling than being good at Excel!
No, it's not a silly question and since the "Modern Excel" was introduced in 2010, the changes have been pretty subtle and it can be a little difficult to tell the difference.
Ask a room of art critics their understanding of what an art work means and they will all have a different opinion. The design and interpretation of a financial model is the same. We all have different perspectives and biases that will lead us in sometimes opposing directions, and this does affect how we approach our work.
There are a few rules for model design that should be followed when designing the layout of a model. Most experienced modellers will follow these instinctively, as they are generally common sense.
Extract from Using Excel for Business Analysis, Chapter Two
Model design and structure can be one of the most difficult parts of building a financial model. Typically, modellers will work from back to front when building their model. The output, or the part they want the viewer or user to see, will be at the front, calculations will go in the middle, and source data and assumptions should go at the back. The image below shows an example of what your tabs in a well-structured model might look like.
Do you know what kind of metrics and ratios a bank or investor looks for in a financial model? At a recent Sydney Modellers' Meetup, hands-on working capital lending specialist Matthew Costello gave a short presentation on what lenders, investors and acquirers look for in a company’s financial models in terms of the financial ratios, sales pipelines and model stress testing from both a historical reporting and forecasting perspective.
Ever been guilty of using Excel as a fancy calculator? If so, you’d just be using a formula in Excel. If you entered a calculation such as =A1+A2 or =452*12, then that's just a formula. If a formula is all you need, then that's fine. But Excel can do so much more!
I've been showing this video supplied by Microsoft in my training recently, and lot of people have asked me for a copy, so here it is! Some of my favourite new features in Excel 2016 are:
Structured Reference Tables have been around for a while, but have become a lot more powerful in recent versions of Excel. They can be extremely useful when using Excel for the purpose of data analysis and modelling but I’m always surprised by the number of people coming along on my training courses who’ve never heard of them, let alone seen them used.
The Table feature in Excel (not to be confused with PivotTables or Data Tables!) is a great tool for organising and analysing large amounts of data. For this reason, like PivotTables, they are sometimes not used in pure financial modelling, but as a very useful tool in reporting and analysis, they are also worth a brief mention. See this article for more information about the use of Tables in Financial Modelling.
The two useful features of a Table are:
Those new to named ranges sometimes struggle to see the benefits of including them in financial models. It's true that most of the time named ranges are not entirely necessary, but there are some good reasons to use named ranges when building a model:
There are all sorts of complicated definitions of financial modelling, and in my experience there is quite a bit of confusion around what a financial model is exactly. A few years ago, we put together a Plum Solutions survey about the attitudes, trends, and uses of financial modeling, asking respondents “What do you think a financial model is?” Participants were asked to put down the first thing that came to mind, without any research or too much thinking about it. I found the responses interesting, amusing, and sometimes rather disturbing.
Now that the Introduction to Financial Modelling course as well as my book Using Excel for Business Analysis has finally been updated for Excel 2013 after several months of hard work, you can imagine my surprise and delight when the preview of Excel 2016 became available for download :-)
In this practical webinar, financial modelling expert, Danielle Stein Fairhurst recording in Dubai for Informa, discusses and demonstrates hands-on strategies for reducing the risk of error when creating financial models.
One of the biggest issues facing financial modellers using Excel for their models is the possibility that there could be a mistake in their work! It’s probably one of the most career damaging things that can happen to a financial modeller, and certainly a high risk of any business using Excel for the purpose of financial modelling.
A well-built model will have the following attributes:
Dashboards are in-vogue now. Chances are your boss is asking for one right now. Traditionally dashboards are associated with a six week development lead time or big budgets, which means critical business decisions that should be taken yesterday are now delayed by two months. But we can create quick, powerful and awesome dashboards using Microsoft Excel in less than two hours (ok, maybe three).Download the workbook
Oh, we must talk about cricket first.
What a week it has been for Australian Cricket. First a very comprehensive win against India in semi-finals and then a clinical display of bowling & fielding that led to winning your fifth cricket world cup. Congratulations.
Don't worry, I am still going to talk about Excel. I just can't help but admire Australian team's success.
Using Excel for Business Analysis provides practical guidance for anyone looking to build financial models. Whether for business proposals, opportunity evaluation, financial reports, or any other business finance application, this book shows you how to design, create, and test your model, then present your results effectively using Excel 2013. The book opens with a general guide to financial modelling, with each subsequent chapter building skill upon skill until you have a real, working model of your own.
In this informative webinar, financial modelling expert, Danielle Stein Fairhurst recording in Dubai for Informa, discusses and demonstrates the various ways of calculating the break-even point using Excel.
The webinar covers determining the break-even point as part of the financial modelling process which can be a critical decision-making tool in determining the profitability and pricing potential for a new or existing business.
I wrote a blog article a while ago with links to some good Excel and Financial Modelling online resources. Due to its popularity at the time, and the fast moving pace of the online world, I thought it was time to update it! www.plumsolutions.com.au/free-stuff is a good place to start, but there are a lot of other online resources available as well.