Excel Tips

www.edupristine.com

Financial Modeling in Excel

2011

www.edupristine.com © Neev Knowledge Management – Pristine

Agenda

• Introduction and Context

• Efficiently using excel – preparation for modeling

• Excel – Summarization Using Pivot Tables

2


Key Authorization

GARP (2007-11)

Authorized Training provider -FRM

Largest player in India in the area of risk

management training. Trained 1000+ students

in risk management

PRMIA (2009-11)

Authorized Training provider – PRM/ APRM

Sole authorized training for PRM Training in

India. Largest player in India in the area of risk

management training. Trained 1000+ students

in risk management

CFA Institute (2010-11)

Authorized Training provider – CFA

Pristine is now the authorized training provider

for CFA Exam trainings . Pristine is largest

training provider for CFA in India with presence

across seven major cities.

FPSB India (2010-11)

Authorized Training provider -CFP

An authorized Education Provider for

Chartered Financial Planner Charter.


Key Associations*

HSBC (2008)

Risk Management and Quant.

Analysis

New joinees in HSBC had a gap in

knowledge of Risk Management

and quantitative skills. Conducted

trainings (On campus) to bridge the

gap

*Indicative List

Mizuho (2010)


Bankers were using excel models

that they could not

understand. Conducted

financial modeling in Excel

trainings to bridge the gap

Bank Of America

Continuum Solutions

(2010)

Finance for Finance

Associates were trained on

valuation and mergers

and acquisitions

J. P. Morgan (2010)

Financial Modeling in

Excel

The Real Assets Group

were trained in Excel for

infrastructure and real-

estate modeling

Franklin Templeton

CFA (2010)

Students were facing a gap in

the overall understanding of

finance topics like corporate

finance, FSA and valuation.

Provided training for over 100

hours to bridge the gap

Credit-Suisse India (2009)

Risk Management and Quant.

Analysis

IT Professionals of Credit-

Suisse India were trained on

risk management.

Ernst & Young (2010)

Real Estate Modeling

Senior Associates were

trained on building

valuation models for real

estate

ING Vyasa (2010)

Infrastructure & Project

Finance

Bankers were trained on

making integrated

models for project

finance and

infrastructure.


…Key Associations

IIM Calcutta (2010-11)


Students about to go for internships

and join jobs found a gap in their

grasp of knowledge of excel for

financial modeling. Conducted

training for 75+ students with an

average rating of 4.5+

BITS Pilani (2009)

Workshops on Basics of

Finance

Most of the students desire a

career in finance. Conducted

training for 350+ students with

an average rating of 4.5+

IIT Delhi (2009)

Corporate finance

Students get placed in finance

companies (UBS, GS, MS, etc)

with no understanding of the

subject/ Job Profile. Conducted

workshop to bridge the gap

NUS Business School (2011)


Second year MBA students

were given a full 2-day

workshop on creating financial

models. They learnt how to

create integrated models of

valuation.

NISM (2008-11)

Derivatives in Hedging (2008)

Financial Modeling (2011)

Corporate in Ludhiana incurred huge

losses because of derivative trades

(for hedging). Conducted trainings

for directors and CFOs for better

understanding of derivative products

FMS Delhi (2010-11)


Final Year MBA students of Faculty

of Management Studies, Delhi

University were trained in financial

modeling so as to prepare them

better for a job in finance.

IEMR Delhi (2010-11)


Final Year MBA students of IEMR

went through extensive financial

modeling workshop to acquire skills

of financial modeling.

SIMSREE (2010)

Final Year MBA students of

Sydenham MBA, Mumbai were

trained in financial modeling so as

to prepare them better for a job in

finance.


Excel as the most important tool for modeling

• Excel is one of the most widely used tools in financial industry

– Easy to use

– High reach & access to software across geographies

– Flexibility

– Robustness

– Inbuilt features (Most people would not even be using 95% of the features) & Extendibility

– Modular and Object Oriented Architecture

• Excel as a data-store

– Easy to store and retrieve information

– Flexibility to put many data-types in the same sheet

• Functions and a range of features

– Excel is easily extendible to be used as a Modeling tool

• Modeling Context

– Understand the industry models being used

– Create your own models Rather than just using them

– Improve & enhance productivity in work

– Extend these models for your use

– Debug Problems

6


Agenda

• Introduction and context



7


Key aspects of Modeling & Excel Usage

• Building a ROBUST model is a must for other people to use your model

– It should generate the correct results

– It should have proper area for Inputs/ Outputs

– It should be able to handle errors properly

– Naming/ Labeling of data items should be done properly

– Accidental changing of model parameters should be avoided

– The model should be easy to understand on computer and in printout

– Reusable components can be made in the excel sheet, which can be made later

• SPEED is the key in modeling

– A large model might have multiple excel sheets and a lot of formulas and calculations. It is necessary to

navigate through the excel sheet in a speedy manner and understand it

– It is a fact that mouse is 5 times slower than using the keyboard to use excel. Due to heavy involvement

of the users, having a strong command over the keyboard shortcuts is a must!

– A well designed excel sheet is easy to understand as well

8


Lets take a moment to understand components of Excel

Toolbar Formula Bar

Cells

Name

Worksheet

Excel 2007 Interface

9

Excel 2003 and 2007 are being widely used in the industry. Most of features of 2007 are backward compatible


… Lets take a moment to understand components of excel

Excel 2007 Interface

Excel 2003 and 2007 are being widely used in the industry. Most of features of 2007 are backward compatible

10


Basic Editing and Saving Excel

CTRL + S

CTRL + C

CTRL + V

CTRL + X

CTRL + Z

CTRL + A

CTRL + B

ALT + TAB

ALT + F4

CTRL + TAB

Save Workbook

Copy

Paste

Cut

Undo

Select All

Bold

Switch Program

Close Program

Switch workbooks

Some Special Shortcuts

CTRL + ALT + V

CTRL + 9

SHIFT + CTRL + 9

CTRL + 0

SHIFT + CTRL + 0

ALT + H + O + I

SHIFT + F11

SHIFT + Spacebar

CTRL + Spacebar

SHIFT + ALT +

SHIFT + ALT –

CTRL + Minus sign

F2

Paste Special

Hide Row

Unhide Row

Hide Column

Unhide Column

Fit column width

New worksheet

Highlight row

Highlight column

Group rows/columns

Ungroup rows/columns

Delete selected cells

Edit cells

Formatting

CTRL + 1

ALT + H + 0

ALT + H + 9

SHIFT + CTRL + ~

SHIFT + CTRL + !

SHIFT + CTRL + #

SHIFT + CTRL + $

SHIFT + CTRL + %

CTRL + ;

Format Box

Increase decimal

Decrease decimal

General format

Number format

Date format

Currency format

Percentage format

Enter the date

Inside the cell Editing

ALT + ENTER

SHIFT + Arrow

SHIFT + CTRL + Arrow

F4

ESC

Start new line in same cell

Highlight within cells

Highlight contiguous items

Toggle “$”

Cancel a cell entry

Formulas

= (equals sign)

ALT + “=“

CTRL + ‘

CTRL + ~

F9

SHIFT + CTRL + Enter

Start a formula

Insert AutoSum formula

Copy formula from above cell

Show formulas/values

Recalculate all workbooks

Enter array formula Auditing Formulas

ALT + M + P

ALT + M + D

ALT + M + A + A

CTRL + [

CTRL + ]

F5 + Enter

SHIFT + CTRL + {

SHIFT + CTRL + }

Trace immediate precedents

Trace immediate dependents

Remove tracing arrows

Go to precedent cells

Go to dependent cells

Go back to original cell

Trace all precedents (indirect)

Trace all dependents (indirect)

Navigating / Editing

Arrow keys

CTRL + Pg Up/Down

CTRL + Arrow keys

SHIFT + Arrow keys

SHIFT + CTRL + Arrow

Home

CTRL + Home

SHIFT + ENTER

TAB

SHIFT + TAB

ALT +

Move to new cells

Switch worksheets

Go to end of continuous range Select a cell

Select range

Select continuous range

Move to beginning of line

Move to cell “A1”

Move to cell above

Move to cell to the right

Move to cell to the left

Display a drop-down list

Change all Inputs to Blue:

Press F5 then Select "Special" then "Constants", "OK” then Manually change

selection to blue font color

Change all Formulas to Black: Select "Formulas" instead of "Constants“ then

change selection to black color


Moving across toolbars in Excel 2003 and 2007

• Press Alt Key to activate Main toolbar

– For Example, Alt F for file

12

• Use CTRL + TAB to Go to

next toolbar

• Use Arrow key to navigate

further

In 2007, Pressing the “ALT” key automatically shows the options


Cell Referencing - $

• Use $ for Absolute Reference

– A1 vs $A1 vs A$1 vs $A$1

• What happens when you copy paste cells

• Change the referencing of a cell by F2 + F4

Source Destination

$A$1 $A$1

A$1 C$1

$A1 $A3

A1 C3

13

Refer Worksheet A


Simple Exercises in Excel

• The financials of a start-up company are given to you. The company would be eligible for funding if

their operating profit margin is greater than 35% and CAGR in revenue growth is greater than 50%.

Create a model to check if the company is eligible for funding. Also visually indicate the eligibility.

– Use worksheet B

– Hint

• Use (P(t)/ P(t-k))^(1/k) -1 to calculate CAGR

• Use AND function to calculate eligibility

• Use IF function to print it

• Use conditional formatting to output the results

• Email ids of 100 people are given to you. They all need to be migrated to a new domain of

edupristine.com. Write a function to migrate all email ids to new domain

– Use worksheet C

– Hint

• Use FIND to find the common character

• Use LEFT function

• Use CONCATENATE function

14


Arrays in Excel

15

• Array (Can be loosely thought of as a list) is a

group of cells or values that Excel treats as a

unit

– No longer treats the cells individually, but list of

cells as an individual entity

– Since individual cells are not independent

entities, so they cannot be changed individually

– Enables apply a formula to every cell in the range

using just a single operation

• For any matrix Operation

– Calculate the exact size of the transposed Matrix

• Select the appropriate range

– Use the function

– Press SHIFT + CTRL + ENTER

• Use Worksheet D

To Run Array Functions – Remember to use CTRL + SHIFT + ENTER


Frequently Used Array functions

16

Function Name Function

SUMPRODUCT() To Sumproduct 2 matrices

TRANSPOSE() To transpose a matrix

MATCH() Match and Index are used in conjunction as a lookup function

INDEX() Match and Index are used in conjunction as a lookup function

VLOOKUP() To lookup for a particular value in array, with the starting column acting as a

lookup reference

COLUMN() Returns the column number of the cell referenced

ROW() Returns the row number of the cell referenced

HLOOKUP() To lookup for a particular value in array, with the top row acting as lookup

reference


Using the VLookUp Function

17

• VLOOKUP() function

– The V in VLOOKUP() stands for vertical

– Works by looking in the first column of a table for the value you specify

– It then looks across the appropriate number of columns (which you specify) and returns whatever value it finds there

– The final option (range_lookup) is a Boolean value that determines how Excel finds the value. Always use FALSE- for exact match

– Whenever looking for data picked from the net, trim the strings before comparison

• Question (Use WorkSheet E)

• The ID of defaulters and their amount and phone number has been provided by the Credit Bureau in Columns A to D.

• Column F contains the IDs of your clients. Use Vlookup function to find out the default amount of your clients.

One of the most widely used functions in Excel


Using the HLookup Function

18

• HLOOKUP() function is

– H in HLOOKUP() stands for horizontal

– Similar to VLOOKUP()

– It searches for the lookup value in the

first row of a table

• Question: Use Worksheet F

• Various expenses of Pristine are

given in a table. Write a function to

calculate the total expenses for any

desired month (user should be able to

change this value, and automatically

the expenses should be updated)

Both Vlookup and Hlookup have a limitation of using the first Column/ Row as reference


Index & Match Functions

19

• INDEX() returns the reference or the value of a cell at the

intersection of a row and column inside a reference

• MATCH() function

– looks through a row or column of cells for a value

– If it finds a match, it returns the relative position of the match

in the row or column

– Use the usual wildcard characters within the lookup_value

argument (provided that match_type is 0 and lookup_value is

text)

– Use the question mark (?) for single characters and the

asterisk (*) for multiple characters

– See Worksheet G


Use Index and Match – Any Column & row Lookup

20

• Index and Match can be used in conjunction to perform complex lookup functions

– Use Match to generate the row number that you are interested in

– Use Index to generate the value that you are looking for

– Similar to implementation of a new kind of directory service

• Use Worksheet H

• Various expenses of Pristine are given in a table. Write a function to calculate the

desired expense head for any desired month (user should be able to change both the

values, and automatically the expenses should be updated)

Easily Extendible approach to get any generalized kind of search

(where both row and column can be variable)

Always Use FALSE in

the boolean required

for comparison


Agenda

• Introduction and context



21


Pivot Tables – An introduction

Easy Summarization & Analysis Tool

22


Pivot Tables

• Summarize data in one field

– called a data field

• and break it down according to the data in

another field.

– The unique values in the second field (called

the row field) become the row headings

• Further break down your data by specifying a

third field

– called the column field

23


Terms used in Excel

• Data source: The original data

– Range, a table, imported data, or an external data

source.

• Field: A category of data, such as Region, Quarter, or

Sales

– Most PivotTables are derived from tables or databases,

a PivotTable field is directly analogous to a table or

database field

• Row field: A field with a limited set of distinct text,

numeric, or date values to use as row labels in the

PivotTable

• Column field: A field with a limited set of distinct text,

numeric, or date values to use as column labels for the

PivotTable

• Report filter: A field with a limited set of distinct text,

numeric, or date values that you use to filter the

PivotTable view

• PivotTable items: The items from the source list used

as row, column, and page labels

24


Summarize Large Data

• To start the pivot wizard:

– ALT D + P

– To complete the process, press finish

• Use Example I

– Calculate Region Wise, Year wise sales

– Give Product wise Data for 2008 Only

25


Summarize Large Data

• To start the pivot wizard:

– ALT D + P

– To complete the process, press finish

• Use Example I



26


Filtering for Particular Rows/ Columns

• Use Example I



– Get Data only for Delhi

27


Other Customization Options …

• Selecting the entire PivotTable: Choose Options, Select, Entire PivotTable

• Selecting PivotTable items: Select the entire PivotTable, then choose Options, Select. In the list,

click the PivotTable element you want to select: Labels and Values, Values, or Labels

• Formatting the PivotTable: Choose the Design tab and then click a style in the PivotTable Styles

gallery

• Sorting the PivotTable: Click any label in either the row field or the column field, choose the Options

tab, and then click either Sort A to Z or Sort Z to A. (If the field contains dates, click Sort Oldest to

Newest or Sort Newest to Oldest, instead.)

• Refreshing PivotTable data: Choose Options and then click the top half of the Refresh button

• Filtering the PivotTable: Click-and-drag a field to the Report Filter area, drop down the report filter

list, and then click an item in the list

28


Give the average sales in regions

• Use Example I

– Calculate Region Wise, Year

wise sales

– Give Product wise Data for

2008 Only


– Instead of Total, give the

average sales

29


Changing the Pivot Table

• Click any cell in the PivotTable’s data area

• Choose Formulas, Calculated Field

– Excel displays the Insert Calculated Field dialog box

– Use the Name text box to enter a name for the calculated item

– Use the Formula text box to enter the formula you want to use for the calculated item

• Use Example I




– Instead of Total, give the average sales

– Calculate the forecast for sales in 2009

30


Errors in Functions

Error Meaning

# DIV/ 0! Divide by Zero Error

Generally seen when trying to divide by empty cell

# NAME? Function name not found error

Generally seen in misspelling of function

# N/A Data Not available

Quite often seen Vlookup cannot find data

# REF! Invalid Cell reference

Typically when a cell is referenced, which has been deleted

# VALUE! Argument/ Operand of the wrong type

# NUM! Problem in value

Typically when a +ve number is expected, and –ve number is given as argument

31

Important to understand what kind of error can occur and handle it properly


Use ISERROR() to Handle Errors

• Excel 2003 has ISERROR() to determine, if there are any exceptions in the formulas

– Handle exception and exit the error gracefully

• Excel 2007 also has an IFERROR() function to handle errors

• Use Worksheet E to handle the errors and display “Not Defaulted”

32

Excel Tips

Documents

authorized

calculate

summarize

risk management

modeling excel

trained 1000

conducted

risk management