FINANCIAL MODELLING

Q1]

Step 1: Set up the Input Fields

2. In cells A1:B8, create the following input fields:

o A1: Name

o A2: Current Age

o A3: Annual Income

o A4: Desired Age of Retirement

o A5: Life Expectancy

o A6: Current Cost of Living

o A7: Average Inflation Rate

o A8: Required Rate of Return on Investments

3. Format cells B2:B8 appropriately (number, currency, percentage).

Step 2: Calculate the Retirement Corpus Needed

1. In cell A10, enter "Retirement Corpus Needed".

2. In cell B10, use the following formula:

=B6 * (1 + B7)^(B4 - B2) * (1 - (1 + B7)^(B5 - B4)) / (B7 - B8)

3. In cell C10, use =FORMULATEXT(B10) to display the formula.

Step 3: Calculate the Periodic Investment Amount

1. In cell A12, enter "Periodic Investment Amount".

2. In cell B12, use the following formula:

=PMT(B8, B4 - B2, 0, -B10, 1)

3. In cell C12, use =FORMULATEXT(B12) to display the formula.

Step 4: Calculate the Total Investment Made

1. In cell A14, enter "Total Investment Made".

2. In cell B14, use the following formula:

=B10 * (B4 - B2)

3. In cell C14, use =FORMULATEXT(B14) to display the formula.

1. In cell A16, enter "Return on Investment (ROI)".

2. In cell B16, use the following formula:

=(B10 - B12) / B12

3. In cell C16, use =FORMULATEXT(B16) to display the formula.

Step 1: Data Input

1. Open a new Excel workbook.

2. Input the data from the provided table into cells A1:E8.

3. Format the cells appropriately (dates, currency, percentages).

Step 2: Create a Line Chart for Sales, Cost of Sales, and Gross Profit

1. Select cells A1:D8.

2. Go to the Insert tab and choose "Line" chart.

3. Select "Line with Markers" for better visibility of data points.

4. Add a chart title: "Monthly Sales, Cost, and Profit Trends"

5. Add axis titles: "Month" for X-axis, "Amount " for Y-axis.

Step 3: Create a Column Chart for Gross Profit Percentage

1. Select cells A1:A8 and E1:E8 (Month and GP%).

2. Go to the Insert tab and choose "Column" chart.

3. Select "2-D Column" chart.

4. Add a chart title: "Monthly Gross Profit Percentage"

5. Add axis titles: "Month" for X-axis, "Gross Profit %" for Y-axis.

Step 4: Create a Scatter Plot for Sales vs. Cost of Sales

1. Select cells B1:C8 (Sales and Cost of Sales data).

2. Go to the Insert tab and choose "Scatter" chart.

3. Select "Scatter with Smooth Lines and Markers".

4. Add a chart title: "Sales vs. Cost of Sales Correlation"

5. Add axis titles: "Sales "for X - axis, "Cost of Sales" for Y-axis.

Step 5: Add Data Labels and Legends

1. For each chart, right-click and select "Add Data Labels" to show values.

Explanation of Charts:

1. Line Chart: Shows trends over time for Sales, Cost of Sales, and Gross Profit. Line charts are
excellent for displaying data that changes over time, allowing easy comparison of multiple data series.

1. Column Chart for GP%: Highlights the monthly changes in Gross Profit Percentage. Column
charts are effective for comparing values across categories (in this case, months).

2. Scatter Plot: Illustrates the relationship between Sales and Cost of Sales. Scatter plots are useful
for showing correlations between two variables.
These visualizations together provide a comprehensive view of the company's financial performance,
highlighting trends, relationships, and key metrics over the given period.
Q3]a]

An Excel statement can be thought of as a complete instruction performing some actions, and is most
commonly seen in macros or VBA (Visual Basic for Applications) code. Statement is probably a command
like declaring variables, assigning a value to them, or allowing the flow of a program using statements like
If-Then and loops. In financial modeling, statements find a lot of use to automate complex processes,
sensitivity analyses, or create custom functions.

Otherwise, functions are pre-defined formulas in Excel that calculate the values and return a result;
functions are used directly in cell formulas and do not require any familiarity of VBA. Excel has hundreds
of built-in functions for various tasks, from simple arithmetic to complex financial calculations. In
financial modeling, functions are the bread and butter of creating calculations and analyses.

Key distinctions in the context of financial modeling include the following:

1. Functions are generally implicit and easy to use, thus being open for a larger number of users,
while statements ask for a more programmed brain.

2. Statements have much more flexibility for complicated logic and custom operations, while
functions restrict their simplicity to a shopping list of pre-defined routines.

3. Functions in cells are always visible and easily auditable, which is critical in financial modeling,
while statements coded in VBA are less transparent and make auditing more difficult.

4. Functions normally run faster most time during performing a simple calculation, while
Statements could be more efficient in the face of complex repetitive tasks.

5. Functions update naturally every time an input cell changes, which is more suited for dynamic
models; whereas, Statements are oftentimes performed manually by clicking some buttons to trigger the
function.

6. Functions feature error handling (like #DIV/0!), while statements generally do not and require
additional coding to manage errors.

In practice, financial modelers mainly use functions to scale regular modeling tasks due to their
simplicity and transparency.
Q3b]

Excel is a powerful tool for financial modeling, providing various statements and functions that aid in
analysis and decision-making. Here are five prominent examples of each:

STATEMENTS IN EXCEL

Income Statement:

Income statement summarizes revenues, costs, and expenses to determine net income over a
specific period.

Income statement contains Revenue, Cost of Goods Sold (COGS), Gross Profit, Operating
Expenses, and Net Income.

Balance Sheet:

Balance sheet presents a company's financial position at a specific point in time, detailing
assets, liabilities, and equity.

Balance sheet contains Assets (Current and Non-current), Liabilities (Current and Long-term),
and Shareholder's Equity.

Cash Flow Statement:

Cash Flow Statement reports the cash generated and used during a specific period, segmented
into operating, investing, and financing activities.

Cash flow statement contains Net Cash from Operating Activities, Cash Flows from Investing
Activities, and Cash Flows from Financing Activities.

Statement of Changes in Equity:

Statement of changes in equity shows the movement in equity from the end of one period to the
end of another, detailing changes such as new share issuance or dividends paid.

Statement of changes in equity contains Share Capital, Retained Earnings, and Other
Comprehensive Income.

Budget vs. Actual Statement:

Budget vs. Actual Statement compares budgeted figures to actual performance, helping assess
variances and manage finances.

Budget vs. Actual Statement contains Budgeted Revenue, Actual Revenue, Variance, Budgeted
Expenses, Actual Expenses, and Variance.

FUNCTIONS IN EXCEL

SUM:

Sum function Adds up a range of numbers, commonly used in income statements to calculate total
revenue or total expenses.

Example: =SUM(B2:B10) where B2 to B10 contains revenue figures.

IF:
IF function Performs logical tests to return different values based on the condition, useful in forecasting
scenarios (e.g., profitability).

Example: =IF(B2>0, "Profit", "Loss") to determine if a company is profitable.

NPV (Net Present Value):

Usage: Calculates the present value of cash flows over time, crucial for investment analysis.

Example: =NPV(discount_rate, cash_flows_range) where discount_rate is the cost of capital and

IRR (Internal Rate of Return):

IRR function Computes the internal rate of return for a series of cash flows, helping in evaluating the
profitability of investments.

Example: =IRR(cash_flows_range) to assess project feasibility.

VLOOKUP:

Vlookup function Looks up a value in a table and returns a corresponding value from a specified column,
often used in financial models for referencing data.

Example: =VLOOKUP(A2, data_range, column_index, FALSE) to retrieve financial metrics based on a

These statements and functions are foundational tools in financial modeling, enabling analysts to build
comprehensive models that inform strategic business decisions.