Some useful Excel formulas for Accounting, Financing, and Financial Analysis
Tags: Learning, Excel, Analysis, Finance, Accounting

It was a Saturday evening and I didn’t have any plan, so thought to refresh my excel skills. Straight I went to search on google and tried to find out some courses.

Somehow, I ended up on ozbargain.com.au where the course was available for free and I quickly registered and started my course on Udemy https://www.udemy.com/share/102ZzwAEYbeF1VR3sD/.

It is a really interactive course for just 2.5 hours with excellent examples, resource materials, understandable concepts of Accounting, Financing, and Financial Analysis.

I didn’t think about how the complicated formulas and analysis that I learned back in school and University with pen and paper could be so easy and enjoyable with just applying correct formulas on Excel.

Here are some valuable key points from the course that I learned:

Formulas for methods of depreciation:

Depreciation- It is a decrease in the fair value of assets over the useful life of assets. Below given are some methods of depreciation:

1. Straight Line method(SLN): In this method, depreciation is charged equally to each year of the useful life of an asset. SLN: (Cost of an asset— salvage or Scrap)/ Useful life of an asset

With Excel

Calculating Depreciation by SLN in Excel

2. Declining Balance Method (DB): In this method, Depreciation is charged higher in the initial useful life of asset but lower in the later useful life of the asset. DB = (cost of asset — scrap/ salvage )* rate of depreciation

With excel

Calculating Depreciation with DB in Excel

The above picture shows how to get depreciation for the Ist period. For the rest of 4 years, lock the cells “F4 ($cost, $salvage, $life ) and copy-paste till year 5”.

3. Sum of year digits method(SYD): This method charge high depreciation in the initial years of asset life than in the later years as it is assumed that productivity of asset decreases with the passage of life.

In this method, depreciation is calculated by adding digits for each year and then each year will be divided by the total of all year digits so to get the percentage by which asset should be depreciated each year, starting with the highest number in Ist year.

With Excel

Depreciation with SYD In Excel

The above picture gives depreciation value for the Ist period and for calculating the rest of 5 years, lock the cells for “ F4($ cost, $salvage, $life ) and copy-paste for the rest of 5 years”.

Formulas for Finance functions

Calculating Present and Future value

Present value ( PV): Representing the amount of money invested today.

Calculating Present Value (PV)N with Excel

Future value (FV): Value of money that invested today over a period of time.

Calculating future values( FV) with Excel

Calculating Present (PV)and Future values (FV) of Annuity

An annuity is series of annual payments at equal intervals of time.

Calculating PV of Annuity

Calculating Present Value (PV) of Annuity with Excel

Calculating FV of Annuity

Calculating Future Value (FV) of Annuity with Excel

Calculating Net Present Value (NPV) and Internal Rate of Return(IRR)

Net Present Value (NPV): It is used to calculate the current value of all future cash flows generated by the project, including the initial capital investment.

Calculating NPV of future cash flows

Calculating Net present value(XNPV) with Excel

Internal Rate of Return (IRR): It is the projected rate of return that the projects earn.

Calculating IRR

Calculating Internal Rate of Return(XIRR) with Excel

Bond Valuation

It is the determination of the fair value or market value of the bonds.

Price(Market Value) of bond = present value of all the future cash flows (discounted at the investor's required rate).

The following method of the excel formula is only applicable to bonds that are redeemable and which pay periodic interest rates.

Calculating Price / Market value of Bond in Excel

Yield (Investors required rate) is the minimum return that an investor is expecting from the investment.

Calculating yield on investment with Excel

Financial Analysis

Excel is a really very powerful tool, with its help we can analyze the data from financial statements such as profit and loss, Balance Sheets.

Ist way to look and analyze changes is year-on-year change. In which we can see what changes in proportionate of changes in revenue and that's called Horizontal analysis

Horizontal Analysis (%) = [(Amount in Comparison Year — Amount in Base Year) / Amount in Base Year] * 100

How we can do in Excel

The first thing copy & paste Profit and loss (P&L) on a separate sheet by click and control the key and drag, name as P&L_horizontal.

Horizontal Analysis with Excel

Clear all the figures from the sheet and start with applying the formula “=[( revenue of 2018- revenue of 2019)/ revenue of 2019]*100 and Enter”

Horizontal analysis — % change in revenue in 2019

Copy & paste to the right and bottom of cells to get a percentage for years 2019 and figures for 2018 will be 0 as there are no figures for 2017 to perform analysis.

Another way to analyze the data is by Vertical analysis- Analyzing financial statements that list each line item as a percentage of a base figure within the statement.

Vertical analysis (%) = (Statement line item / Total base figure) *100]

Same as in Horizontal analysis, create a new sheet called P&L_Vertical Analysis.

P&L_Vertical Analysis

Clear all the above-highlighted figures and start applying the formula for 2019 = (cost of revenue/Total revenue) and convert in % and Press Enter.

Calculating — Cost of Revenue as a % of the total Revenue 2019

Now lock the cell for total Revenue by F4($C5) and Copy & paste to the right and bottom of cells to get a percentage for years 2019–2016.