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MODULE 5

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32 views5 pages

MODULE 5

Uploaded by

Prikki Parker
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MODULE-5

CREATE FIVE EXCEL FORMULAS

PRAVEEN THIYAGARAJAN
PRK23MS1049

Creating Excel tools for financial analysis can streamline complex calculations and provide
insightful visualizations. Here are five practical Excel tools that you might find useful for
financial analysis, along with examples of how to set them up:

1. Discounted Cash Flow (DCF) Model

A DCF model estimates the value of an investment based on its expected future cash flows,
discounted back to their present value.

Example Setup:

1. Inputs:
o Forecast Period (years)
o Cash Flows for each year
o Discount Rate
2. Formulas:
o Present Value of Cash Flow for each year: =Cash Flow / (1 + Discount
Rate) ^ Year
3. Excel Setup:
o A1: "Year"
o B1: "Cash Flow"
o C1: "Discount Factor"
o D1: "Present Value"
o A2:A6: Years 1 to 5
o B2:B6: Enter projected cash flows
o C2:C6: =1 / (1 + $F$1) ^ A2 (assuming $F$1 is the Discount Rate cell)
o D2:D6: =B2 * C2
o D7: =SUM(D2:D6) (Total Present Value)
2. Break-Even Analysis

This tool helps determine the level of sales needed to cover total costs.

Example Setup:

1. Inputs:
o Fixed Costs
o Variable Cost per Unit
o Selling Price per Unit
2. Formulas:
o Break-Even Point (units): =Fixed Costs / (Selling Price per Unit -
Variable Cost per Unit)
3. Excel Setup:
o A1: "Fixed Costs"
o B1: "Variable Cost per Unit"
o C1: "Selling Price per Unit"
o D1: "Break-Even Point (units)"
o A2: Enter fixed costs
o B2: Enter variable cost per unit
o C2: Enter selling price per unit
o D2: =A2 / (C2 - B2)
3. Portfolio Return and Risk Analysis

Calculate the return and risk of a portfolio by considering individual asset returns and their
correlation.

Example Setup:

1. Inputs:
o Weight of each asset
o Expected Return of each asset
o Standard Deviation of each asset
o Correlation Matrix
2. Formulas:
o Expected Portfolio Return: =SUMPRODUCT(Weights, Expected Returns)
o Portfolio Variance: =MMULT(TRANSPOSE(Weights), MMULT(Correlation
Matrix, Weights))
o Portfolio Standard Deviation: =SQRT(Portfolio Variance)
3. Excel Setup:
o A1: "Asset"
o B1: "Weight"
o C1: "Expected Return"
o D1: "Standard Deviation"
o A2:A5: Asset names
o B2:B5: Asset weights
o C2:C5: Expected returns
o D2:D5: Standard deviations
o E1: "Expected Portfolio Return"
o E2: =SUMPRODUCT(B2:B5, C2:C5)
o F1: "Portfolio Standard Deviation"
o F2: Use matrix formulas to calculate based on standard deviations and
correlation.
4. Financial Ratios Analysis

This tool helps calculate and analyze key financial ratios to assess a company's performance.

Example Setup:

1. Inputs:
o Net Income
o Total Revenue
o Total Assets
o Total Liabilities
o Shareholders' Equity
2. Formulas:
o Gross Margin: = (Total Revenue - Cost of Goods Sold) / Total
Revenue
o Return on Assets (ROA): = Net Income / Total Assets
o Debt to Equity Ratio: = Total Liabilities / Shareholders' Equity
3. Excel Setup:
o A1: "Net Income"
o B1: "Total Revenue"
o C1: "Total Assets"
o D1: "Total Liabilities"
o E1: "Shareholders' Equity"
o F1: "Gross Margin"
o G1: "ROA"
o H1: "Debt to Equity Ratio"
o F2: =(B2 - COGS) / B2 (enter COGS in a separate cell)
o G2: =A2 / C2
o H2: =D2 / E2
5. Scenario Analysis Tool

This tool helps evaluate different scenarios by altering key variables and observing their impact.

Example Setup:

1. Inputs:
o Base Case Assumptions
o Alternative Scenarios
2. Formulas:
o Use Data Tables to analyze different scenarios.
3. Excel Setup:
o A1: "Scenario"
o B1: "Assumption"
o C1: "Base Case"
o D1: "Scenario 1"
o E1: "Scenario 2"
o A2: Variable names
o B2: Base case values
o C2: Enter base case values
o D2: Enter values for Scenario 1
o E2: Enter values for Scenario 2
o Use Data Tables (found under the "What-If Analysis" in Excel) to create
scenarios and compare the results.

These tools cover various aspects of financial analysis, from valuing investments to assessing
company performance and risks. Implementing these models in Excel will help in making
informed financial decisions.

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