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!

To date, Excel has got over 400 pre-defined formulas already in Excel such as IF, SUM, VLOOKUP, INDEX to name a few.  And every time they release a new version of Excel, they add more! Although they help you to write formulas, these are technically referred to as functions. Functions can do very complicated calculations that would be very time-consuming to build manually.  For example, if you wanted to add up a range of cells without using a function, you’d need to write something like: =A1+A2+A3+A4+A5 instead of =SUM(A1:A5).  As you can see, functions make things a lot easier and are basically the whole point of using Excel.

So in summary, a formula is any calculation in Excel, but a function is a pre-defined calculation.

For example:
=A1/A2 is just a formula
=MAX(A1:B20) is a formula containing a function.

Mastering the use of functions in formulas is a key skill in learning financial modelling.  Happy formula-writing!