PROJECT REPORT

ON

FINANCIAL MODELLING USING SPREADSHEETS LAB

– BCOM (312)

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE OF

BACHELORS OF COMMERCE HONOURS

2022-2025

UNDER THE GUIDANCE

OF

Dr. KANISHKA GUPTA

SUBMITTED BY:

KSHITIJ CHAUHAN
ROLL NO. 80717788822
BATCH NO. BCOM (H) SEM 6 SECTION C
TH

Vivekananda School of Business Studies, Vivekananda Institute of Professional

Studies, AU Block (Outer Ring Road), Pitampura,

Delhi- 110034
Table of Contents

S.NO PARTICULARS

1 STUDENT UNDERTAKING…………………………………………………………………..……….….3

2 CERTIFICATE……………………………………………………………………………………..…....….4

3 ACKNOWLEDGEMENT……………………………………………………………..……………………5

4 INTRODUCTION TO EXCEL……………………………………………………..…………………..…..7

5 BASIC EXCEL FUNCTIONS…………………………………………………………………..…………11

6 SORTING THE DATA………………………………………….…………………………..……………..24

7 FILTER- BASIC AND ADVANCED……………………………………………………...………………30

8 ADVANCED EXCEL(SENSITIVITY ANALYSIS)………………………………………………...……37

9 ADVANCED EXCEL AS A TOOL IN FINANCIAL MODELLING

 CORRELATION……………………………………………………….62
 REGRESSION………………………………………………………….64
 VARIANCE…………………………………………………………….66

10 CHARTS AND GRAPHS

1. Bar Chart………………………………………………….............……69
2. Column Chart………………………………………………………......70
3. Line Graph………………………………………………………...…....71
4. Pie Chart…………………………………………………………….….73
5. Doughnut Pie Chart …………………………………………………....74
6. Line and Column Chart (Combo)……………………………………....75
7. Waterfall Chart…………………………………………………………76
8. Thermometer Chart ………………………………………….…....77
Practical Applications ……………………………………………………78

11 PIVOT TABLES AND CHARTS……………………………………………………………………….79

12 DASHBOARD…………………………………………………………………………………………...83

13 CONDITIONAL FORMATTING………………………………………………….…………….….88
1. Name manager…………………………………………………..………………………….…...100
14 CAPITAL BUDGETING TECHNIQUES ……………………………………………….…………106
 Net Present Value (NPV) Profitability Index (PI)
  Internal Rate of Return (IRR)
..................................................................................................................
1. Extended Internal Rate of Return (XIRR)
2. Modified Internal Rate of Return (MIRR)
15 Time Value of Money (TVM) Techniques in Excel ………………………………………….…….117

1. Present Value (PV)

2. Future Value (FV)
3. Rate (RATE)
4. Number of Periods (NPER)
5. Payment (PMT)
6. Principal Payment (PPMT)
7. Interest Payment (IPMT)
8. RATIO ANALYSIS

16 Weighted Average Cost of Capital (WACC)………………………………………………….………..144

17 Capital Asset Pricing Model (CAPM)…………………………………………………………..………148

18 Discounted Cash Flow (DCF) Analysis…………………………………………………….....………...151

19 Depreciation…………………………………………………………………………………..………….157
 STUDENT UNDERTAKING

This is to certify that I have completed the project titled FINANCIAL MODELLING USING
SPREADSHEETS LAB under the Guidance of Dr. KANISHKA GUPTA in partial fulfillment of
the requirement for the Bachelor of Commerce (H) degree award at Vivekananda Institute of
Professional Studies, Vivekananda School of Business Studies, New Delhi. This is an original piece
of work and has not been submitted elsewhere.

STUDENT SIGNATURE:

KSHITIJ CHAUHAN

ROLL NO. 80717788822

BATCH NO. BCOM (H) SEM 6 SECTION C
TH
 CERTIFICATE

This is to certify that the Project titled FINANCIAL MODELLING USING

SPREADSHEETS LAB is an academic work done by KSHITIJ CHAUHAN submitted
in the partial fulfilment of the requirement for the award of the Degree of Course from
Vivekananda Institute of Professional Studies. It has been completed under the guidance of
Dr. KANISHKA GUPTA (Faculty Guide). The viva examiner, which includes data
verification, will examine the authenticity of the project work, authenticity of information,
etc., and it may be rejected due to non-fulfilment of quality standards set by the Institute.

SIGNATURE OF THE GUIDE:

Dr. KANISHKA GUPTA

 ACKNOWLEDGEMENT

Every work involves efforts and inputs of various kinds and people. I am thankful to all those
people who have been helpful to me to the extent of their being instrumental in the
completion and accomplishment of the project entitled FINANCIAL MODELLING
USING SPREADSHEETS LAB. I am very thankful to Dr. KANISHKA GUPTA for her
timely guidance, supervision & encouragement that have helped me to get this golden
opportunity, and who provided me with their expert advice, inspiration & moral support. I
thank her for contributing and guiding me for the same, the valuable suggestions & guidance
provided by her helped me in the successful accomplishment of my project.

Last but not least, I would like to express my heartiest gratitude to my family members and
friends. Their motivation, love, and moral support boosted my confidence to work sincerely
and effectively. Thank you for being my guide and motivator throughout this difficult path.

STUDENT SIGNATURE:

KSHITIJ CHAUHAN

ROLL NO. 80717788822

BATCH NO. BCOM (H) SEM 6 SECTION C
TH
INTRODUCTION TO EXCEL

Microsoft Excel is a software program produced by Microsoft that allows users to organize,
format, and calculate data with formulas using a spreadsheet system. MS-Excel 2000 is a
Windows-based application package. It is quite useful in entering, editing, analyzing, and storing
data. Arithmetic operations with numerical data, such as addition, subtraction, multiplication,
and division, can also be done with Excel. You can sort the numbers/characters according to
some given criteria (like ascending, descending, etc.) and solve simple financial, mathematical,
and statistical formulas.
Excel is a spreadsheet, a grid made from columns and rows. It is a software program that can
make number manipulation easy and painless. The nice thing about using a computer and a
spreadsheet is that you can experiment with numbers without having to redo all the
calculations.

Uses of Excel:

Excel is typically used to organize data and perform financial analysis. It is used across all
business functions and at companies from small to large. It also saves a lot of time because
of its functions and features. Some of the uses of Excel are-
1. Analyzing and storing data- One can analyze a larger amount of data to discover
trends with the help of graphs and charts, and one can summarize the data and store it in an
organized way. Once the data is stored systematically, it can be used easily for multiple
purposes.
2. Excel tool makes work easier– There are so many tools of Ms-Excel that make our
work extremely easy and save our time as well. There are many wonderful tools for sorting,
filtering and searching which make our work easy. Such tools are pivot tables, tables, etc.
3. Data Recovery & Spreadsheets – The lost data can be recovered in MS-Excel without
much inconvenience. The next important use is that there are spreadsheets in MS-Excel which
also makes your work easy.
4. Mathematical Formulas of MS-Excel make things easier – MS-Excel makes it easier
for us to solve complex mathematical problems in a much simpler way without much manual
effort. Some of the mathematical formulas are finding the sum, average, etc.
5. Security- All the files of MS-Excel can be kept password protected through visual
basic programming or directly within the Excel file.
6. Keeps Data combined at one location – MS-Excel can be used to keep all your data
at one location. This will help you in saving your data from getting lost.
 7. Helps businessmen in developing future strategy – Data can be presented in the form
of charts and graphs so it can help in identifying different trends. MS-Excel simplifies this
task and helps businessmen grow and maximize profits through the same.

Key Features of Excel:

Several features are available in Excel to make your task easier. Some of the features are:

1. AutoFormat - lets you choose many preset table-formatting options.

2. AutoSum - helps you to add the contents of a cluster of adjacent cells.

3. List AutoFill - automatically extends cell formatting when a new item is added to the end of a
list.

4. AutoFill - feature allows you to quickly fill cells with repetitive or sequential data such as
chronological dates or numbers, and repeated. AutoFill can also be used to copy functions. You
can also alter numbers with this feature.

5. The AutoShapes toolbar will allow you to draw several geometrical shapes, arrows, flowchart
elements, stars, and more. With these shapes, you can draw your graphs.

6. Wizard - guides you to work effectively while you work by displaying various helpful tips and
techniques based on what you are doing.

7. Drag and Drop - feature will help you to reposition the data and by simply dragging the data
with the help of the mouse.

8. Charts - features will help you in presenting a graphical representation of your data in the form
of Pie, Bar, Line charts, and more.
9. PivotTable - flips and sums data in seconds and allows you to perform data analysis and generate
reports like periodic financial statements, statistical reports, etc. You can also analyse complex
data relationships graphically.
EXCEL WORKSHEET:

Excel allows you to create worksheets much like paper ledgers that can perform automatic
calculations. Each Excel file is a workbook that can hold many worksheets. The worksheet is a grid
of columns (designated by letters) and rows (designated by numbers). The letters and numbers of the
columns and rows (called labels) are displayed in gray buttons across the top and left side of the
worksheet. The intersection of a column and a row is called a cell. Each cell on the spreadsheet has a
cell address that is the column letter and the row number. Cells can contain either numbers or
mathematical formulas.

Components Of An Excel Spreadsheet:

Figure 1

Basics of Spreadsheet:

Spreadsheet is made up of:

• Column: Column is defined as the vertical space that is going up and down the window.
Letters are used to designate each COLUMN'S location.
• Rows: Row is defined as the horizontal space that is going across the window. Numbers are
used to designate each ROW'S location.

• Cell: A cell is the space where a row and column intersect. Each CELL is assigned a name
according to its COLUMN letter and ROW number.

Window components of Spreadsheets:

 • Column: Column is a vertical set of cells. A single worksheet contains 16384 total columns
• Row: A row is a horizontal set of cells. A single worksheet contains 1048576 total rows.
• Fill handle: It is a small dot in the lower right corner of the active cell. It helps you enter
numerical values and series, insert ranges, insert serial numbers, etc.

• Address bar: IT is the small input bar at the left side of the window. It shows the address of
the active cell. If you have selected more than one cell, then it will show the address of the
first cell in the range.

• Formula bar: The Formula bar is an input bar below the ribbon. It shows the content of the
active cell, and you can also use it to enter the formula in the cell

• Title bar: The title bar shows the name of the workbook followed by the application name.
• File name: The file name is a simple menu as like all other application. It contains options
like save, save as, open, print, etc.

• Ribbon tab: Ribbon tabs are the bunch of specific option group which further contains
options.

• Worksheet tab: This tab shows that all the worksheets which all the worksheets which are
present in the workbook. By default, one see three worksheets in new workbook with name of
sheet 1 and so on.

COMMANDS FOR EXCEL:

• Keyboard Shortcuts:

1. Copy: Ctrl+C (Windows) or Cmd+C (Mac) - Copies the selected data.

2. Paste: Ctrl+V (Windows) or Cmd+V (Mac) - Pastes the copied data.
3. Cut: Ctrl+X (Windows) or Cmd+X (Mac) - Cuts the selected data.
4. Undo: Ctrl+Z (Windows) or Cmd+Z (Mac) - Reverses the last action.
5. Redo: Ctrl+Y (Windows) or Cmd+Shift+Z (Mac) - Reapplies the last undone action.
6. Save: Ctrl+S (Windows) or Cmd+S (Mac) - Saves the current workbook.
7. Print: Ctrl+P (Windows) or Cmd+P (Mac) - Opens the print dialog.
8. Bold: Ctrl+B (Windows) or Cmd+B (Mac) - Applies bold formatting.
9. Italic: Ctrl+I (Windows) or Cmd+I (Mac) - Applies italic formatting.
10. Underline: Ctrl+U (Windows) or Cmd+U (Mac) - Applies underline formatting.
11. Select All: Ctrl+A (Windows) or Cmd+A (Mac) - Selects all cells in the worksheet.
 12. Insert New Sheet: Shift+F11 - Inserts a new worksheet.
13. Open Visual Basic Editor: Alt+F11 (Windows) or Option+F11 (Mac) - Opens the Visual
Basic Editor.

• Other Commands:

1. Insert New Row: Ctrl+Shift+= (Windows) or Cmd+Shift+= (Mac) - Inserts a new row.
2. Insert New Column: Ctrl+Shift+Plus Sign (Windows) or Cmd+Shift+Plus Sign (Mac) -
Inserts a new column.
3. Delete Row: Ctrl+- (Windows) or Cmd+- (Mac) - Deletes a row.
4. Delete Column: Ctrl+- (Windows) or Cmd+- (Mac) - Deletes a column.
5. Hide Row: Ctrl+0 (Windows) or Cmd+0 (Mac) - Hides a row.
6. Hide Column: Ctrl+9 (Windows) or Cmd+9 (Mac) - Hides a column.
7. Unhide Row: Ctrl+Shift+0 (Windows) or Cmd+Shift+0 (Mac) - Unhides a row.
8. Unhide Column: Ctrl+Shift+9 (Windows) or Cmd+Shift+9 (Mac) - Unhides a column.

BASIC EXCEL FUNCTIONS

Excel functions are categorized into several types, including mathematical, date and logical functions.
Each category provides a set of tools to perform specific operations on data, making data analysis and
manipulation more efficient. Here's a detailed introduction to each type of function, along with
examples:

MATHEMATICAL FUNCTIONS:

Mathematical functions in Excel are used to perform numerical calculations. They include basic
arithmetic operations as well as more complex calculations.

1. SUM: Adds a series of numbers.

Example: =SUM(A1:A10) adds all values from cells A1 to A10

1. Select the cell where you want to display the sum.

2. Type =SUM(`.

3. Select the range of cells you want to sum (e.g., A1:A10).

 4. Close the parenthesis and press Enter.

Figure 2

Figure 3

2. AVERAGE: Calculates the average of a series of numbers.

Example: =AVERAGE(B1:B10) computes the average of values in cells B1 through B10.

1. Select the cell where you want to display the average.

2. Type =AVERAGE(`.

3. Select the range of cells you want to average (e.g., B1:B10).

 4. Close the parentheses and press Enter.

Figure 4

Figure 5

3. COUNT: Counts the number of cells containing numbers in a specified range.

Example: =COUNT(A1:C11) counts all numeric entries in A1 to C11.
- Steps:

1. Select the cell where you want to display the count.

2. Type =COUNT(`.
 3. Select the range of cells you want to count (e.g., A1:C11).
4. Close the parenthesis and press Enter.

Figure 6

Figure 7

4. MAX: Returns the highest value from a set of numbers.

Example: =MAX(D1:D10) finds the maximum value in D1 to D10.
1. Select the cell where you want to display the maximum value.

2. Type =MAX(`.

3. Select the range of cells you want to find the maximum from (e.g., D1:D10).

4. Close the parenthesis and press Enter.

 Figure 8

Figure 9

5. MIN: Returns the lowest value from a set of numbers.

Example: =MIN(E1:E10) identifies the minimum value in E1 to E10.

1. Select the cell where you want to display the minimum value.

2. Type =MIN(`.

3. Select the range of cells you want to find the minimum from (e.g., E1:E10).

4. Close the parenthesis and press Enter.

 Figure 10

Figure 11

DATE FUNCTIONS:

Date functions in Excel are used to manipulate dates and calculate time calculations.

1. DATEDIF: Calculates the difference between two dates in a specified interval (days, months,
years).

Example: =DATEDIF(A1, B1, "D") calculates the difference in days between dates in A1 and B1.
1. Select the cell where you want to display the date difference.

2. Type `=DATEDIF(`.

3. Enter the start date (e.g., A1).

4. Enter the end date (e.g., B1).

5. Specify the interval (e.g., "D" for days).

6. Close the parenthesis and press Enter.

Figure 12

Figure 13
FUNCTIONS:

functions in Excel are used to manipulate strings.

1. CONCATENATE (or CONCAT): Combines multiple strings into one.

Example: =CONCATENATE(A1, " ", B1) combines from A1 and B1 with a space in between.
- Steps:

1. Select the cell where you want to display the combined .

2. Type `=CONCATENATE(`.

3. Select the first string (e.g., A1).

4. Add a space or other separator if needed.

5. Select the second string (e.g., B1).

6. Close the parenthesis and press Enter.

Figure 14
 Figure 15

2. TRIM: Removes extra spaces from .

Example: =TRIM(C1) removes extra spaces from the in C1.

- Steps:

1. Select the cell where you want to display the trimmed .

2. Type =TRIM(`.
3. Select the cell with the to trim (e.g., C1).

4. Close the parenthesis and press Enter.

 Figure 16

LOGICAL FUNCTIONS:

Logical functions in Excel are used to test conditions and make decisions based on data.

1. IF: Tests a condition and returns one value if true and another if false.
Example: =IF(D1>25, "Greater than 25", "Less than or equal to 25") checks if A1 is
greater than 25.

- Steps:

1. Select the cell where you want to display the result.

2. Type =IF(`.

3. Specify the condition (e.g., D1>10).

4. Enter the value to return if true (e.g., "Greater than 25").

5. Enter the value to return if false (e.g., "Less than or equal to 25").

6. Close the parenthesis and press Enter.

 Figure 17

Figure 18

2. AND: Tests multiple conditions and returns true if all are true.
Example: =AND(A1>10, B1<20) checks if A1 is greater than 10 and B1 is less than
20. -Steps:

1. Select the cell where you want to display the result.

2. Type =AND(`.
3. Enter the first condition (e.g., A1>10).

4. Enter additional conditions if needed, separating them with commas.

5. Close the parenthesis and press Enter.

Figure 19

Figure 20
3. OR: Tests multiple conditions and returns true if any are true.
Example: =OR(A1>10, B1<20) checks if A1 is greater than 10 or B1 is less than 20.
-Steps:

1. Select the cell where you want to display the result.

2. Type =OR(`.

3. Enter the first condition (e.g., A1>10).

4. Enter additional conditions if needed, separating them with commas.

5. Close the parenthesis and press Enter.

Figure 21
 Figure 22

SORTING THE DATA

Sorting data in Excel is a fundamental skill that helps organize and analyze information efficiently. It
allows you to arrange data in ascending or descending order based on various criteria such as
numerical values, , dates, or even cell colours. Here's a detailed introduction to sorting data in Excel,
along with step-by-step instructions:

Types of Sorting:

• Ascending Order: Arranges data from smallest to largest (e.g., A to Z for letters, smallest to
largest for numbers).
• Descending Order: Arranges data from largest to smallest (e.g., Z to A for numbers, largest
to smallest for numbers).
• Custom Sorting: Allows you to sort data based on specific criteria, such as sorting by multiple
columns or using custom lists.

Steps to Sort Data in Excel:

Sorting a Single Column:-

1. Select the Data Range:

 Click and drag your cursor to select all the cells you want to sort. This can be a single column
or multiple columns.
2. Open the Data Tab:

 Click on the "Data" tab in the ribbon at the top of the Excel window.
3. Choose the Sort Option:
 In the "Sort & Filter" group, click on the "Sort" button. This will open the Sort dialog box.
4. Select the Column to Sort:
 In the Sort dialog box, under "Column," select the column you want to sort from the dropdown
menu.
5. Choose the Sort Type:

 Under "Sort On," select "Cell Values" for numbers or dates. o

For sorting by format, choose "Cell Color," "Font Color," or "Cell Icon."
6. Select the Order:

 Under "Order," choose whether you want to sort in ascending or descending order.

 Select "A to Z" to ascend or "Z to A" to descend.

 For numbers, choose "Smallest to Largest" for ascending or "Largest to Smallest" for
descending.
7. Confirm Sorting:

 Click "OK" to apply the sorting.

Figure 23
 Figure 24

Figure 25

Sorting by Multiple Columns:-

1. Select the Data Range:

 Highlight the entire dataset you want to sort.

2. Open the Data Tab:

 Click on the "Data" tab.

 3. Choose the Sort Option:

 Click on the "Sort" button in the "Sort & Filter" group.

4. Select the First Column to Sort:
 In the Sort dialog box, select the first column you want to sort from the "Sort by"
dropdown.
5. Add Another Level:

 Click "Add Level" to add another column to sort by.

 Select the second column from the "Then by" dropdown.
6. Choose the Order for Each Column:

 Select the order for each column (ascending or descending).

7. Confirm Sorting:

 Click "OK" to apply the sorting.

Figure 26
 Figure 27

Sorting by Cell Colour or Format:-

1. Select the Data Range: Highlight the cells you want to sort.
2. Open the Data Tab: Click on the "Data" tab.
3. Choose the Sort Option: Click on the "Sort" button.
4. Select the Sort Type: Under "Sort On," choose "Cell Color," "Font Color," or
"Cell Icon."
5. Define the Order:
 Under "Order," select the specific colors or icons you want to sort by.
 Choose whether to move them to the top or bottom.
6. Confirm Sorting: Click "OK" to apply the sorting.

Figure 28
 Figure 29

Sorting Left to Right:-

1. Select the Data Range: Highlight the cells you want to sort.
2. Open the Data Tab: Click on the "Data" tab.
3. Choose the Sort Option: Click on the "Sort" button.
4. Select Options: In the Sort dialog box, click on "Options."
5. Change Orientation: Under “Orientation," select "Sort left to
right."
6. Select the Row to Sort: Choose the row you want to sort from the
"Sort by" dropdown.
7. Confirm Sorting: Click "OK" to apply the sorting.

Figure 30
 Figure 31

FILTER- BASIC AND ADVANCED

Filtering data in Excel is a powerful feature that allows you to narrow down your dataset to only show
the information you need. It helps in focusing on specific parts of your data without altering the
original dataset. Here's a detailed guide on how to use filters in Excel, including step-by-step
instructions:

Types of Filtering

• AutoFilter: Automatically creates filters based on the data in your headers.

• Custom Filter: Allows you to specify more complex criteria for filtering, such as filtering by
multiple conditions.
• Advanced Filter: Enables you to filter data based on criteria specified in another range.

Steps to Apply a Filter in Excel Using AutoFilter:

1. Select the Data Range: Highlight the entire dataset you want to filter, including headers.

2. Open the Data Tab: Click on the "Data" tab in the ribbon.
3. Turn On AutoFilter: In the "Data Tools" group, click on the "Filter" button. This will add
dropdown arrows to each header.
4. Apply a Filter:

 Click on the dropdown arrow in the header of the column you want to filter.
  Select the specific values you want to show or hide.
5. Clear Filters:

 To remove filters, click on the dropdown arrow and select "Clear Filter From [Column
Name]."

Figure 32

Figure 33
 Using Custom Filter:

1. Select the Data Range: Highlight the entire dataset you want to filter,
including headers.

2. Open the Data Tab: Click on the "Data" tab.

3. Turn On AutoFilter: Click on the "Filter" button if it's not already enabled.
4. Apply a Custom Filter:

 Click on the dropdown arrow in the header of the column you want to filter.

 Select " Filters" (or "Number Filters" for numbers) and choose a filter type (e.g.,
"Contains," "Equals," "Greater Than").

 Enter your custom criteria and click "OK."

5. Clear Filters:
 To remove filters, click on the dropdown arrow and select "Clear Filter From [Column
Name]."

Figure 34
 Figure 35

Figure 36

Using Advanced Filter:

1. Prepare Criteria Range:

 Create a separate range with your filter criteria. For example, if you want to filter by values
greater than 10, enter ">10" in a cell. \
2. Select the Data Range: Highlight the entire dataset you want to filter,

including headers.
2. Open the Data Tab: Click on the "Data" tab.
3. Apply Advanced Filter:

 Click on the "Advanced" button in the "Data Tools" group.

 Check "Filter the list, in-place" or "Copy to another location" depending on whether you want
to filter the original data or copy the filtered data to a new location.

 Specify the criteria range and click "OK."

4. Clear Filters:

 To remove filters, click on the dropdown arrow and select "Clear Filter From [Column
Name]."

Figure 37
 Figure 38

Filtering by Colour:

1. Select the Data Range: Highlight the cells you want to

filter.
2. Open the Data Tab: Click on the "Data" tab.
3. Turn On AutoFilter: Click on the "Filter" button if it's
not already enabled.
4. Filter by Color:
 Click on the dropdown arrow in the header of the column you want to filter.
 Select "Filter by Color" and choose the specific color you want to filter by.
5. Clear Filters:

 To remove filters, click on the dropdown arrow and select "Clear Filter From [Column
Name]."

Filtering in Excel is a powerful tool for data analysis, allowing you to quickly focus on specific
parts of your dataset without altering the original data. Whether you're using AutoFilter, Custom
Filter, or Advanced Filter, Excel provides flexible options to suit your needs.
Figure 39

Figure 40
 ADVANCED EXCEL (SECURITY ANALYSIS)

Advanced Excel skills are crucial for security analysis, enabling professionals to efficiently analyze
and visualize large datasets, such as log files, to identify potential security threats. Here's a detailed
introduction to using advanced Excel techniques in security analysis:

In the realm of security analysis, Excel is not just a spreadsheet tool but a powerful platform for
analyzing and visualizing data. It is often used to start forensic investigations with log data or prepare
customized reports for chief security officers. Advanced Excel skills, including the use of Power
Query, Power Pivot, and complex formulas, can significantly enhance the efficiency of security
analysts.

Key Advanced Excel Features

1. Power Query:

 Purpose: Import, transform, and load large datasets efficiently.

 Use in Security Analysis: Power Query is invaluable for handling log files, which can be massive.
It allows analysts to import data from various sources, clean it, and prepare it for analysis.

 Example: Use Power Query to import web traffic logs (W3C Extended Log File Format) and
transform them into a structured dataset for further analysis.

2. Power Pivot:

 Purpose: Create data models that can handle millions of rows and perform complex data analysis.

 Use in Security Analysis: Power Pivot helps in creating powerful analytics tools like PivotTables
and Pivot Charts, which are essential for summarizing and visualizing large datasets.

 Example: Use Power Pivot to build a data model from log data and create PivotTables to analyze
traffic patterns or identify anomalies.

3. Complex Formulas:

 Purpose: Perform advanced calculations and data manipulation.

 Use in Security Analysis: Formulas like INDEX-MATCH can be used to quickly find specific data
points within large datasets, such as identifying IP addresses associated with suspicious activity. -
Example: Use the INDEX-MATCH function to find the frequency of specific IP addresses in log
data.

4. Conditional Formatting:

 Purpose: Highlight cells based on specific conditions.

 Use in Security Analysis: Useful for visually identifying anomalies or patterns in log data, such as
highlighting IP addresses that appear more frequently than expected.

 Example: Apply conditional formatting to highlight IP addresses that appear more than a certain
number of times in the log data.

5. Advanced Filtering:

 Purpose: Filter data based on complex criteria.

 Use in Security Analysis: Essential for narrowing down log data to specific events or patterns, such
as filtering by date, IP address, or event type.

 Example: Use advanced filters to show only log entries from a specific date range or IP address.

6. Data Visualization:

 Purpose: Create charts and graphs to visualize data.

 Use in Security Analysis: Helps in presenting complex data insights clearly, such as visualizing
traffic patterns or anomaly detection.

 Example: Create a bar chart to show the frequency of different types of security events over time
Steps to Apply Advanced Excel Techniques in Security Analysis

1. Import Log Data:

- Use Power Query to import log files into Excel.

- Transform the data to ensure it is structured and clean.

2. Create a Data Model:

- Use Power Pivot to create a data model that can handle large datasets.

- Load the data into the model for analysis.

3. Apply Complex Formulas:

- Use formulas like INDEX-MATCH to find specific data points.

- Apply conditional formatting to highlight anomalies.

4. Filter and Analyze Data:

- Use advanced filtering techniques to narrow down the data.

- Analyze patterns and trends using PivotTables and PivotCharts.

5. Visualize Insights:

- Create charts and graphs to visualize data insights.

- Use these visualizations to present findings to stakeholders.

 DATA TABLES

With a Data Table in Excel, you can easily vary one or two inputs and perform What-if analysis. A
Data Table is a range of cells in which you can change values in some of the cells and come up with
different answers to a problem.

Instead of creating different scenarios, you can create a data table to quickly try out different values
for formulas. You can create a one-variable data table or a two-variable data table.

By using What-If Analysis tools in Excel, you can use several different sets of values in one or more
formulas to explore all the various results.

1. Prepare the data table and select it.

2. Go to data tab and click on what-if-analysis and select data table

A dialogue box appears. Now put row input cell and column input cell and click ok.

Figure 41
 Figure 42

GOAL SEEK:

Goal Seek is used when we have a cell containing a formula and we wish the result of the
formula to be a specific value — our goal. The formula in the goal cell refers to one or more
other cells in the spread sheet. The goal is obtained by varying the value in one of these cells.
Goal Seek does not add any new functionality to Microsoft Excel. The problems it solves
could readily be solved by simple mathematical methods. Goal Seek relieves us of the burden
of performing these mathematical operations. Goal Seek is used when the goal is a known
numeric value and when only one cell is to be varied in achieving the goal value. If the
problem is more complex than this, Solver should be used.

STEPS:

1. Open a new workbook and enter the shown in C5:D7. In D7 enter the formula =D5*D6.
2. Go to data and click on what if analysis. Select goal seek option. A box will appear.
3. Set the cell in which there is a variable value and then to the value you want the change.
Set the cell in which you want the change in and then click ok Result:

Figure 43
 Figure 44

Figure 45

SCENERIO ANALYSIS:

In modelling, a scenario is a specific set of values for all the input variables of a model. Suppose you
have created a model to forecast the financial statements for a business over the next five years. You
may want to see what some important balance sheet ratios will look like if the economy takes a
downturn. For this, you have to first define what you mean by the economy taking a downturn by
specifyingwhat the value of each independent variable will be when the economy takes a downturn.

That is a scenario. You may call this a pessimistic scenario and decide to create and look at several
other scenarios as well.

Steps:

1. Go to data and click on what of analysis. Select Scenario manager.

2. Now choose the scenario you want to make that is best, moderate and worst accordingly by
changing the cells.
3. Make a scenario summary.

Result:
Figure 46
Figure 47

Figure 48
Figure 49

Figure 50
Figure 51

Figure 52
 Figure 53

Figure 54

ADVANCED EXCEL AS A TOOL IN FINANCIAL MODELLING:

Financial modeling is the process of creating detailed financial statements and forecasts to guide
business decisions. It involves analyzing historical data, making assumptions about future trends, and
projecting financial outcomes. Advanced Excel is a crucial tool in this process, offering a range of
functions that help analysts and modelers efficiently manage, analyze, and present financial data.

Why Advanced Excel in Financial Modeling?

1. Beyond Basic Calculations: Emphasize that financial modeling goes beyond simple arithmetic. It
involves building structured models that reflect real-world business scenarios, allowing for "what-if"
analysis and informed decision-making.
2. Model Structure and Best Practices: Briefly touch on the importance of good model design, including
clear assumptions, logical flow, and documentation. Mention the use of separate input sheets,
calculation sheets, and output sheets.
3. Importance of Assumptions: Stress that financial models are only as good as their underlying
assumptions. Explain how Excel helps in managing and changing these assumptions to test different
scenarios.
4. Financial Statements and Key Metrics: Highlight how Excel is used to create and analyze core
financial statements (income statement, balance sheet, cash flow statement) and calculate key
financial metrics (e.g., NPV, IRR, ROI).

2. Why Advanced Excel in Financial Modeling? (Detailed)

1. Efficiency:
 Automating repetitive tasks (e.g., calculating depreciation, interest, taxes)

 Quickly updating models when input data changes.

 Using array formulas for complex calculations.

2. Flexibility:
 Building custom functions using VBA (Visual Basic for Applications) for specialized

calculations.

 Integrating data from external sources (e.g., databases, CSV files)

 Creating dynamic charts and dashboards that update automatically.

3. Visualization:

 Creating waterfall charts to visualize cash flow changes.

 Using sparklines to show trends within cells.

 Formatting cells conditionally to highlight key data points.

 Creating pivot tables to summarize large datasets.

4. Collaboration:

 Excel's comment and track changes features allow for effective collaboration when multiple

people are working on the same model.

5. IF and Nested IF Statements:

 Show how to use nested IF statements for complex conditional

logic.

 Explain how to use AND and OR functions within IF

statements.
6. INDEX and MATCH:

 Explain the difference between the Array and Reference forms of the index

function.

 Show how to use match with 1 and -1 as match types, and the requirements of the

data.

7. Data Validation:

 Explain how to use data validation to limit data entry to specific values or

ranges.

 Show how to create drop-down lists for lookup values.

8. Error Handling (IFERROR, IFERROR, ISNA):

 Emphasize the importance of handling errors to prevent model crashes.

 Show how to use IFERROR to display custom error messages or return

default values.

9. Data Tables and Scenario Manager:

 Explain how to use data tables to perform sensitivity analysis by varying input variables.

 Show how to use the scenario manager to create and compare different scenarios.
 Practical Applications in Financial Modelling

1. Budgeting :

 Creating flexible budgets that can be easily updated.

 Using VLOOKUP or INDEX/MATCH to pull actual for Variance analysis.
 Creating rolling forecasts.

2. Forecasting :

 Using trend lines and regression analysis to forecast future values.

 Building scenario-based forecasts to assess different outcomes.
 Creating dynamic charts to visualize forecasts.

3. Financial Reporting :

 Creating automated financial reports that update with new data

 Using pivot tables to summarize and analyze financial data.
 Creating dashboards to track key performance indicators (KPIs).

4. Valuation:

 Building Discounted Cash Flow models.

 Calculating WACC.
 Performing sensitivity analysis on valuation inputs.

5. Project Finance:

 Modeling loan repayments, debt service coverage ratios, and project returns.
 Building complex project finance models with multiple debt tranches.

6. Mergers and Acquisitions (M&A):

 Building accretion/dilution models.

 Performing merger integration analysis.
 Valuing target companies.

1. VLOOKUP:

Purpose: Search for a value in the first column of a table and return a corresponding value from
another column.

Syntax: =VLOOKUP(lookup_value, table_array, col_index_num, [range_lookup]) Example:

 • Lookup Value: Product Name
• Table Array: A table with product names in the first column and prices in the second.
• Column Index Number: 2 (to return the price)

Final formula

=VLOOKUP(A2,A2:O11,2,FALSE)

Steps:

1. Enter =VLOOKUP( in the formula bar.

2. Specify the lookup value (e.g., "Apple").
3. Define the table array (e.g., A2:B10).
4. Enter the column index number (e.g., 2 for the price column).
5. Choose the range lookup type (e.g., FALSE for exact match).

Result:

Figure 55
 Figure 56

Figure 57

2. VLOOKUP+MATCH:

This combination is not typically used together directly, as MATCH is more commonly paired with
INDEX. However, you can use MATCH to dynamically specify the column index in VLOOKUP:

=VLOOKUP(A2, B:C, MATCH("Price", B1:C1, 0), FALSE)

Steps for VLOOKUP+MATCH Function

1. Identify Your Lookup Value: Determine the value you want to search for. This will be used
in the VLOOKUP function.
2. Identify Your Table Array: This is the range where your data is located. Ensure the lookup
value is in the first column of this range.
3. Identify the Column Header You Want to Match: This will be used in the MATCH function
to dynamically determine the column index.
4. Enter the Formula:
 Start with =VLOOKUP(. o Enter the lookup value (e.g., A2). o Specify
the
table array (e.g., A:0).
 Use the MATCH function to dynamically specify the column index:
 Start with MATCH(.
 Enter the column header you want to match (e.g., B2).
 Specify the range of headers (e.g., A2:D2).
 Set the match type to 0 for an exact match.
 Close the MATCH function and specify the range lookup type (e.g., FALSE for exact
match).
5. Complete the Formula:

=VLOOKUP(A2,A:O,MATCH(B2,A2:D2,0),FALSE)

6. Press Enter: Execute the formula to get the result.

Result:
Figure 58
 Figure 59

Figure 60

3. IF and VLOOKUP:

Purpose: Apply conditional logic based on a VLOOKUP result.

Example: Check if a product's price is greater than Rs.550 and apply a discount.
Steps:

1. Start with an IF statement.

2. Use VLOOKUP to retrieve the price.
3. Apply the condition (price > 550).
4. If true, apply a discount (price * 0.9); otherwise, return the original price. Final formula

=IF(VLOOKUP(B2,B:C,2,FALSE)>550,VLOOKUP(B2,B:C,2,FALSE)*0.9,VLOOKUP(B2,B:
C,2,FALSE))

Result:
Figure 61
 Figure 62

Figure 63

4. INDEX:

Purpose: Return a value at the intersection of a specified row and column. Syntax:

=INDEX(reference, row_num, col_num)

Example: Return the value in the second row and third column of a range.
1. Enter =INDEX(.
2. Specify the reference range (e.g., A1:C10).
3. Enter the row number (e.g., 2).
4. Enter the column number (e.g., 3).

Final formula =INDEX(A1:C10, 2, 3)

Result:
Figure 64
 Figure 65

Figure 66

5. INDEX+MATCH:

Purpose: Dynamically look up values based on row and column positions. Syntax:

=INDEX(range, MATCH(lookup_value, lookup_array, [match_type])

Example: Find the price of a product using its name.

Steps:

1. Enter =INDEX(.
2. Specify the range to return values from (e.g., A2:Rs.ARs.10).
3. Use MATCH to find the row number of the lookup value (e.g., A2).
4. Enter the lookup array (e.g., Rs.ARs.2:Rs.ARs.10).
5. Set the match type (e.g., 0 for exact match).

Final formula
=INDEX(A2:Rs.ARs.10, MATCH(A2, Rs.ARs.2:Rs.ARs.10, 0))

Result:
Figure 67
 Figure 68

Figure 69

CORRELATION, REGRESSION, VARIANCE:

CORRELATION:

Correlation measures the strength and direction of the linear relationship between two variables. It
ranges from -1 (perfect negative correlation) to 1 (perfect positive correlation), with 0 indicating no
linear relationship.

Formula: The sample correlation coefficient formula is given by:

r=∑i=1n(xi−xˉ)(yi−yˉ)∑i=1n(xi−xˉ)2∑i=1n(yi−yˉ)2r = \frac{\sum_{i=1}^{n}(x_i - \bar{x})(y_i -
\bar{y})}{\sqrt{\sum_{i=1}^{n}(x_i - \bar{x})^2} \cdot \sqrt{\sum_{i=1}^{n}(y_i -
\bar{y})^2}}r=∑i=1n(xi−xˉ)2∑i=1n(yi−yˉ)2∑i=1n(xi−xˉ)(yi−yˉ)

Types of Correlation:

• Positive Correlation: As one variable increases, the other also tends to increase.
• Negative Correlation: As one variable increases, the other tends to decrease.
• No Correlation: Variables do not have a linear relationship.
Example: Suppose we want to find the correlation between the amount spent on advertising and sales
revenue.

Month Advertising Spend Sales Revenue

Jan 100 1000

Feb 150 1200

Mar 200 1500

Steps in Excel:

1. Enter your data into two columns.

2. Use the CORREL function: =CORREL(range1, range2).
o Example: =CORREL(B2:B4, C2:C4).

Result:

Figure 70
 Figure 71

REGRESSION:

Regression is a statistical method used to establish a relationship between two or more variables. It
helps predict the value of a dependent variable based on one or more independent variables.

Simple Linear Regression Equation:y=β0+β1x+ϵy = \beta_0 + \beta_1x + \epsilony=β0+β1x+ϵ

Types of Regression:

• Simple Linear Regression: Involves one independent variable.

• Multiple Linear Regression: Involves more than one independent variable.

Example: Predicting sales based on advertising spend.

Steps in Excel:

1. Go to the Data tab > Data Analysis > Regression.

 2. Input the Y-range (dependent variable) and X-range (independent variable).
3. Choose an output range and click OK.

Result:

Figure 72

Figure 73
 Figure 74

VARIANCE:

Variance measures how spread out a set of data is from its mean value. It is calculated as the average
of the squared differences from the mean.

Purpose: Measure how spread out a set of data is from its mean.

Excel Method:
• Using VAR Function: o
Syntax: =VAR(range)
Formula: The sample variance formula is given by:
s2=1n−1∑i=1n(xi−xˉ)2s^2 = \frac{1}{n-1} \sum_{i=1}^{n} (x_i -
\bar{x})^2s2=n−11∑i=1n(xi−xˉ)2
Example: Calculate the variance of exam scores.

Student Score

A 80
 B 90

C 70

Steps in Excel:

1. Enter your data into a column.

2. Use the VAR function: =VAR(range).
o Example: =VAR(B2:B5).

Result:

Figure 75
 Figure 76

Practical Applications:

• Correlation: Useful in finance to analyze stock performance or in marketing to understand

customer behavior.
• Regression: Commonly used in real estate to predict property values or in finance to
forecast stock prices.

Variance: Helps in understanding risk in investments or quality control in manufacturing.

 CHARTS AND GRAPHS

1. Bar Chart:

Purpose: Compare different categories of data.

Steps:

1. Select the data (A1:D7).

2. Go to the Insert tab.
3. Click on Bar Chart.
4. Choose a subtype (e.g., Clustered Bar Chart).

Result:

Figure 77
 Figure 78

2. Column Chart:

Purpose: Similar to bar charts but with vertical bars.

Sample Data:
Year
Sales

2020 91163

2021 134599

2022 148414

2023 138115

2024 199845

2025 122910

2026 180820

2027 199185

2028 162192

2029 249822

2030 196892

2031 209962
 2032 355488
Steps:

1. Select the data (A9:B22).

2. Go to the Insert tab.
3. Click on Column Chart.
4. Choose a subtype (e.g., Clustered Column Chart).

Figure 79

3. Line Graph:

Purpose: Show trends over time.

Sample Data:
Years
Bears Dolphins Whales

2017 8 150 80

2018 54 77 54

2019 93 32 100

2020 116 11 76
 2021 137 6 93

2022 184 1 72
Steps:

1. Select the data (A1:B4).

2. Go to the Insert tab.
3. Click on Line Chart.
4. Choose a subtype (e.g., Line with Markers).

Figure 80
 Figure 81

4. Pie Chart:

Purpose: Display how different categories contribute to a whole.

Sample Data:
Qtr Sales

Qrt 1 2,500

Qrt 2 1,000

Qrt 3 2,600

Qrt 4 6,000
Steps:

1. Select the data (A1:B4).

2. Go to the Insert tab.
3. Click on Pie Chart.
4. Choose a subtype (e.g., 2-D Pie Chart).
 Figure 82

5. Doughnut Pie Chart:

Purpose: Similar to a pie chart but with a hollow center.

Sample Data:

Team Sales

Team 1 350

Team 2 1000

Team 3 800

Team 4 700

Team 5 900
Steps:

1. Create a Pie Chart as above.

2. Right-click on the chart > Format Data Series.
3. Set Doughnut Hole Size to create a donut chart.

Result:
 Figure 83

6. Line and Column Chart (Combo):

Purpose: Combine line and column charts to show different types of data.

Sample Data:
Qtr
Revenue Expenses

Qrt 1 100 50

Qrt 2 200 100

Qrt 3 300 150

Qrt 4 400 200

Steps:

1. Select the data (A1:C4).

2. Go to the Insert tab.
3. Click on Combo Chart.
4. Choose line for one series and column for the other.

Result:
 Figure 84

7. Waterfall Chart:

Purpose: Visualize how an initial value is affected by a series of positive or negative values.

Sample Data:
Jan Feb Mar April May June Total

Sales
(lacs)
30 35 45 55 65 70 300

Steps:
1. Select the data (A1:B4).
2. Go to the Insert tab.
3. Click on Waterfall Chart.
4. Adjust the chart as needed.

Result:
 Figure 85

8. Thermometer Chart:

Purpose: Track progress toward a goal.

Sample Data:
Progress Total
60% 100%
Steps:

1. Create a column chart with your data.

2. Format the chart to resemble a thermometer:
o Use a single column. o
Adjust colors and add a goal line.
 Figure 86

Practical Applications

• Bar and Column Charts: Useful in finance for comparing quarterly earnings or in marketing
for comparing product sales.
• Line Charts: Commonly used in finance to track stock prices or in operations to monitor
production levels.
• Pie and Donut Charts: Effective in business for showing market share or composition of
sales.
• Line and Column Combo Charts: Helpful in finance to compare sales and profit trends.
• Waterfall Charts: Used in accounting to visualize income statements.
• Thermometer Charts: Often used in fundraising campaigns to track progress.
 PIVOT TABLES AND CHARTS

What Are Pivot Tables?

Pivot tables are powerful tools in Excel that summarize and reorganize data from a spreadsheet or
database table. They help analyze large datasets by grouping, counting, summing, or averaging data
based on categories. Pivot tables do not alter the original data; they simply "pivot" it to view from
different perspectives13.

What Are Pivot Charts?

Pivot charts are graphical representations of data connected to pivot tables. They allow users to
dynamically analyze and visualize data by changing the fields in the pivot table, which automatically
updates the chart6.

Why Are Pivot Tables and Charts Different from Standard Tables and Charts?

1. Interactivity: Pivot tables and charts offer interactive filtering and summarization
capabilities, allowing users to quickly analyze subsets of their data by changing the fields in
the pivot table.
2. Dynamic Updates: Changes made to the pivot table are immediately reflected in the pivot
chart, and vice versa.
3. Flexibility: Users can easily switch between different chart types and data views without
having to recreate the chart.

How Are Pivot Tables and Charts Unique Compared to Normal Tables?

1. Data Summarization: Pivot tables summarize data by aggregating values into categories,
making it easier to understand complex datasets.
2. Visual Representation: Pivot charts provide a graphical view of the data, which can be more
intuitive than looking at raw data in a table.
3. Filtering and Customization: Pivot tables and charts allow for easy filtering and
customization of the data displayed, which is not as straightforward with standard tables and
charts.

Steps to Create a Pivot Table and Chart

Step 1: Prepare Your Data

Ensure your data is organized in a table format with headers in the first row. Sample
Data for Pivot Table
Date Region Product Sales

2023-01-01 North A 100

2023-01-01 South B 200

Date Region Product Sales

2023-01-02 North A 150

2023-01-02 South B 250

Steps to Create a Pivot Table

1. Select Data: o Click any cell in your data range.

2. Insert Pivot Table:
 Go to the Insert tab.
 Click on PivotTable.
 Choose where you want the pivot table to appear (e.g., new worksheet).
 Click OK.

Figure 87
 Figure 88

Figure 89

3. Customize Pivot Table:

o Drag fields into the Rows, Columns, Values, and Filters areas.
o For example:
 Drag Region to Rows.
 Drag Product to Columns.
  Drag Sales to Values.

Figure 90

Steps to Create a Pivot Chart

1. Select Pivot Table: o Click any cell in the pivot table.

2. Insert Pivot Chart:
 Go to the PivotTable Analyze tab
 Click on PivotChart.
 Choose a chart type (e.g., column chart).
 Click OK.
 Figure 91

Figure 92

Practical Applications

• Business Analysis: Pivot tables and charts are useful for analyzing sales data by region,
product, or time period.

• Financial Reporting: They help in summarizing financial data and creating interactive
dashboards.
• Marketing Insights: Pivot tables can be used to analyze customer behavior and preferences.

DASHBOARD:

An Excel dashboard is a visual representation of key metrics that allows users to quickly view and
analyze data in one place. It combines various charts, tables, and other visual elements to provide
insights into business performance.

Why Are Dashboards Different from Normal Data?

1. Visual Clarity: Dashboards present complex data in a clear and concise manner using charts
and graphs, making it easier to understand than raw data in tables.
 2. Interactive Analysis: Dashboards offer interactive filtering and summarization capabilities,
allowing users to quickly analyze subsets of their data.
3. Real-Time Updates: Dashboards can be set up to automatically refresh data from external
sources, ensuring that the displayed information is always up to date.

Practical Applications

• Business Analysis: Dashboards are useful for tracking key performance indicators (KPIs)
such as sales figures, customer engagement, and operational efficiency.
• Financial Reporting: They help in summarizing financial data and creating interactive
reports.
• Marketing Insights: Dashboards can be used to analyze customer behavior and preferences.
Example Data
Date Region Product Sales

2023-01-01 North A 100

2023-01-01 South B 200

2023-01-02 North A 150

2023-01-02 South B 250

Steps to Create a Dashboard

1. Import Data:

 Pull your raw data into Excel.

 Ensure it is well-organized and clean.
2. Set Up Workbook Structure:
 Create separate sheets for data, calculations, and the dashboard.
 Organize your data into tables for easier manipulation.
3. Create Pivot Tables and Charts:
 Use pivot tables to summarize data.
 Create pivot charts to visualize this data.
4. Assemble the Dashboard:
  Copy charts and tables onto the dashboard sheet.
 Arrange them logically and aesthetically.
5. Add Interactive Elements:
 Use slicers and timelines to filter data dynamically.
 Connect these elements to your charts and tables.
6. Customize and Refine:
 Apply themes and formatting to make the dashboard visually appealing.

 Ensure all elements are aligned and easy to read.

Example Steps with Sample Data

1. Create a Pivot Table:

 Select the data range (A1:D5).
 Go to the Insert tab.
 Click on PivotTable.
 Choose where you want the pivot table to appear.
 Click OK.

Figure 93

2. Customize Pivot Table:

 Drag Region to Rows.
 Drag Product to Columns.
  Drag

Sales to Values.

Figure 94

3. Create Pivot Chart:

 Select any cell in the pivot table.
 Go to the PivotTable Analyze tab.
 Click on PivotChart.
 Choose a chart type (e.g., column
 chart). Click OK.
 Figure 95

Figure 96
4. Assemble Dashboard:
 Copy the pivot chart onto a new sheet named "Dashboard".

 Arrange it logically and add other visual elements as

needed.
 Figure 97

Benefits of Dashboards

• Flexibility: Easy to customize and update.

• Visibility of Data: Provides real-time insights.
• Time Saving: Combines multiple reports into one view.
• Increased Productivity: Facilitates quick decision-making.
• Simplification: Presents complex data in a clear format.

CONDITIONAL FORMATTING:

Conditional formatting is a feature in Excel that allows you to apply specific formatting to cells
based on certain conditions or criteria. This feature helps highlight important data points, trends, or
patterns within your dataset, making it easier to analyze and understand complex information.

Why Is Conditional Formatting Different from Normal Formatting?

1. Dynamic Application: Unlike normal formatting, which applies a static style to cells,
conditional formatting changes the appearance of cells dynamically based on their values or
formulas.
 2. Interactive Analysis: It enables users to quickly identify trends, outliers, or specific
conditions within their data, facilitating more efficient analysis.
3. Flexibility: Conditional formatting offers a wide range of conditions and formatting options,
allowing users to customize how data is highlighted.

Practical Applications

• Business Analysis: Useful for highlighting key performance indicators (KPIs) such as sales
figures above a certain threshold.
• Financial Reporting: Helps in identifying trends in financial data, such as expenses
exceeding budget.
• Quality Control: Can be used to highlight defects or quality issues in manufacturing data.
Example Data

Region Sales

North 100

South 200

Region Sales

East 150

Steps to Apply Conditional Formatting

1. Select Cells:
 Choose the range of cells you want to format (e.g., B2:B4).
 2. Open Conditional Formatting:
 Go to the Home tab.
 Click on Conditional Formatting in the Styles group.
3. Choose a Rule:
 Select from built-in rules like Highlight Cells Rules or Top/Bottom Rules.
 For example, choose Highlight Cells Rules > Greater Than… to highlight sales
above a certain threshold.
4. Set Conditions:
 Enter the condition (e.g., greater than 150).
 Choose the desired format (e.g., light red fill with dark red ).
5. Apply Formatting:

 Click OK to apply the formatting.

Types of Conditional Formatting

Conditional formatting in Excel offers several types of rules that can be applied to highlight cells
based on specific conditions. Here are some of the most commonly used types:

1. Highlight Cells Rules

Purpose: Highlight cells based on specific conditions such as greater than, less than, between, or
equal to a value.

Example:

• Highlight sales greater than 150.

Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > Highlight Cells Rules.

3. Choose Greater Than….

4. Enter 150 and select a format.
5. Click OK.
Figure 98
 Figure 99

Figure 100

2. Top/Bottom Rules

Purpose: Highlight the top or bottom percentage or number of cells.

Example:

• Highlight the top 10% of sales.

Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > Top/Bottom Rules.
3. Choose Top 10%.
4. Select a format.
5. Click OK.
Figure 101
 Figure 102

Figure 103

3. Data Bars

Purpose: Display data bars in cells to visually represent the relative size of values.

Example:

• Show data bars for sales figures.

Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > Data Bars.
3. Choose a data bar type.
4. Click OK.
 Figure 104

Figure 105

4. Color Scales

Purpose: Apply color scales to cells to represent different values.

Example:
• Use a color scale to show sales trends.
Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > Color Scales.
3. Choose a color scale.
4. Click OK.

Figure 106

Figure 107
5. Icon Sets

Purpose: Use icons to represent different ranges of values.

Example:

• Use icon sets to show sales performance.

Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > Icon Sets.
3. Choose an icon set.
4. Click OK.

Figure 108
 Figure 109

6. New Rule

Purpose: Create custom rules using formulas.

Example:
• Highlight sales above the average.

Steps:

1. Select the cells (e.g., B2:B4).

2. Go to Home > Conditional Formatting > New Rule.
3. Choose Use a formula to determine which cells to format.
4. Enter a formula (e.g., =B2>AVERAGE(Rs.BRs.2:Rs.BRs.4)).
5. Select a format.
6. Click OK.
 Figure 110

Figure 111

Practical Applications

• Business Analysis: Useful for highlighting key performance indicators (KPIs) such as sales
figures above a certain threshold.
 • Financial Reporting: Helps in identifying trends in financial data, such as expenses
exceeding budget.

• Quality Control: Can be used to highlight defects or quality issues in manufacturing data.

Name manager

Excel's Name Manager is a powerful tool that allows users to create, edit, and manage named ranges,
formulas, and constants within a workbook. It simplifies data management and formula writing by
enabling users to assign meaningful names to cell ranges, making formulas more readable and
maintainable.

Benefits of Using the Name Manager

1. Improved Readability: Named ranges make formulas easier to understand by replacing

complex cell references with descriptive names.
2. Reduced Errors: Using named ranges reduces the likelihood of errors when updating
formulas, as changes to the data structure do not affect the named references.

3. Enhanced Navigation: The Name Manager facilitates easy navigation within large datasets
by providing a centralized list of all defined names.

How to Access the Name Manager Via

the Ribbon:

Go to the Formulas tab.

Click on Name Manager in the Defined Names group.

Using a Shortcut:

Press Ctrl + F3.

Creating Named Ranges

1. Using the Name Box:

 Select the cell or range you want to name. o Type a name in the Name Box
(located to the left of the formula bar). \

 Press Enter.
 2. Using the Name Manager:

 Open the Name Manager.

 Click New.

 Enter a name and specify the range it refers to (e.g., =Sheet1!Rs.ARs.1:Rs.BRs.10).

 Click OK.

Editing and Deleting Named Ranges

1. Editing:
 Open the Name Manager.
 Select the name you want to edit.
 Click Edit.
 Modify the name or reference as needed.
 Click OK.
2. Deleting:

 Open the Name Manager.

 Select the name you want
 to delete.
 Click Delete.
 Confirm deletion.

Using Named Ranges in Formulas

1. Example Formula: If you have a named range called "SalesData", you can use it in a
formula like this: =SUM(SalesData).

2. Benefits in Formulas: Named ranges make formulas more intuitive and

easier to maintain.

Dynamic Named Ranges

1. Purpose: Dynamic named ranges adjust automatically as your data expands or

contracts.
2. Creating Dynamic Ranges:
 Use functions like OFFSET and COUNTA to define a dynamic range.

Example:
=OFFSET(Sheet1!Rs.ARs.1,0,0,COUNTA(Sheet1!Rs.A:Rs.A),COUNTA(Sheet1!R s.1:Rs.1)).
Practical Applications

• Business Analysis: Useful for simplifying complex financial models and making them more
understandable.
• Financial Reporting: Helps in creating transparent and maintainable financial reports.
• VBA Macros: Essential for creating robust macros that reference data ranges without
breaking due to structural changes.

Example Data

Region Sales

North 100

South 200

East 150

Steps to Use the Name Manager

Step 1: Open the Name Manager

1. Go to the Formulas tab.

2. Click on Name Manager in the Defined Names group.
3. Alternatively, press Ctrl + F3.
 Figure 112

Step 2: Create a Named Range

1. In the Name Manager, click New.

2. Enter a name for the range (e.g., "SalesData").
3. Set the scope to Workbook (default).
4. In the Refers to box, select the range A1:B4.
5. Click OK.
 Figure 113

Figure 114

Step 3: Use the Named Range in a Formula

1. Select a cell where you want to display the total sales.

2. Enter a formula using the named range: =SUM(SalesData).
3. Press Enter to calculate the total.

Figure 115
 Figure 116

Step 4: Edit a Named Range

1. Open the Name Manager.

2. Select the named range "SalesData".
3. Click Edit.
4. Update the reference to include more data if needed (e.g., A1:B6).

Figure 117
Step 5: Delete a Named Range

1. Open the Name Manager.

2. Select the named range "SalesData".
3. Click Delete.

Figure 118

CAPITAL BUDGETING TECHNIQUES

Capital budgeting techniques help businesses evaluate investment projects by analyzing their cash
flows. Below is a detailed guide to calculating NPV, PI, IRR, XIRR, and MIRR in Excel, including
formulas, steps, and examples.

1. Net Present Value (NPV) NPV calculates the present value of future cash flows minus the initial

investment. A positive NPV indicates a profitable project.

Example:
Period Cash Flow

0 -200000

1 50000
 2 50000

3 50000

4 50000

5 50000

6 50000

7 50000

8 50000

9 50000

10 50000

Formula: =NPV(10%, B3:B13) + B2

Steps in Excel:

1. Input Data: Enter cash flows in a column (include the initial investment as a
negative value).

Figure 119

2. Formula: =NPV(rate, cashflows) + initial_investment

 rate: Discount rate. cashflows: Range of future cash flows (Year 1 to Year n).
 initial_investment: Initial outlay (already negative).
 Figure 120

Result:

NPV = ₹ 1,07,228.36

• Accept the project (Positive NPV).

2. Profitability Index (PI)

Ratio of the present value of future cash flows to the initial investment. PI > 1 means the project is
profitable.

Example:
Period Cash Flow

0 -200000

1 50000

2 50000

3 50000

4 50000

5 50000

6 50000
 7 50000

8 50000

9 50000

10 50000
Steps in Excel:

1. Calculate NPV using the steps above.

Figure 121

2. Formula: = (NPV + ABS(initial_investment)) / ABS(initial_investment)

Figure 122
 Figure 123

Result:

PI = 1.536141776 -> Accept (PI > 1).

3. Internal Rate of Return (IRR)

The discount rate that makes NPV = 0. Accept if IRR > required rate.

Example:
Period Cash Flow

0 -200000

1 50000

2 50000

3 50000

4 50000

5 50000

6 50000

7 50000

8 50000
 9 50000

10 50000

Formula: =IRR(B2:B13)

Steps in Excel:

1. Input Data: Enter cash flows (include the initial investment).

Figure 124

2. Formula: =IRR(cashflows, [guess])

 guess: Optional starting guess (default = 10%).

 Figure 125

Result:

• IRR = 21% → Accept if required rate is 10%.

4. Extended Internal Rate of Return (XIRR) IRR

for irregular cash flows (non-periodic dates).

Example:
Date Policy instalments

01/01/09 -10000

07/01/09 -12000

01/01/10 -10000

07/01/10 -15000

01/01/11 -13000

07/01/11 -10000

01/01/12 -10000

07/01/12 -10000

01/01/16 120000
 07/01/18 50000

Formula: =XIRR(B2:B11, A2:A11)

Steps in Excel:

1. Input Dates and Cash Flows:

Figure 126

2. Formula: =XIRR(cashflows, dates, [guess])

 Figure 127

Result:

• XIRR = 10.98% → Accept if required rate is 10%.

5. Modified Internal Rate of Return (MIRR)

Adjusts IRR by assuming reinvestment at a safe rate (not project IRR).

Example:
Date Policy instalments

01/01/09 -10000

07/01/09 -12000

01/01/10 -10000

07/01/10 -15000

01/01/11 -13000

07/01/11 -10000

01/01/12 -10000

07/01/12 -10000

01/01/16 120000
 07/01/18 50000
Formula: =MIRR(B2:B11, 10%, 8%) Steps

in Excel:

1. Input Data: Cash flows and specify reinvestment & finance rates.

Figure 128

2. Formula: =MIRR(cashflows, finance_rate, reinvest_rate) o finance_rate: Cost of

capital. o reinvest_rate: Rate to reinvest positive cash flows.
 Figure 129

Result: MIRR = 12% → Accept if MIRR > 10%.

Time Value of Money (TVM) Techniques in Excel

The Time Value of Money (TVM) is a foundational concept in finance that evaluates how money
changes value over time. Below is a detailed breakdown of key TVM functions in Excel, including
formulas, steps, and examples for each.

1. Present Value (PV)

Calculates the current value of a future sum of money or cash flow stream, discounted at a specified
rate.

Formula: =PV(rate, nper, pmt, [fv], [type])

• rate: Interest rate per period.

• nper: Total number of periods.
• pmt: Regular payment per period (use 0 if none).
• fv: Future value (optional; default = 0).
• type: Timing of payment (0 = end of period, 1 = beginning; optional).

Example:
Calculate the present value of ₹10,000 received after 5 years at 8% annual interest.

Parameter Value

Rate 8%

Nper 5

FV 10,000

Formula: =PV(8%, 5, 0, 10000) Steps:

1. Add data to the spreadsheet

 Figure 130

2. apply the formula- (rate, nper, pmt, [fv], [type])

Figure 131

Result:
PV = -₹6,805.83 (negative indicates outflow).

2. Future Value (FV)

Calculates the future value of an investment or loan based on periodic payments and a constant
interest rate.

Formula: =FV(rate, nper, pmt, [pv], [type])

 • pv: Present value (optional; default = 0).

Example:
Find the future value of ₹5,000 invested for 10 years at 6% annual interest.
Parameter Value

Rate 6%

Nper 10

PV -5,000

Formula: =FV(6%, 10, 0, -5000) Steps:

1. Add data on the spreadsheet.

Figure 132

2. Apply the Formula- =FV(rate, nper, pmt, [pv], [type])

 Figure 133

Result:

FV = ₹7346.64 (positive indicates inflow).

3. Rate (RATE)

Determines the interest rate per period for a loan or investment.

Formula: =RATE(nper, pmt, pv, [fv], [type], [guess])

• guess: Initial estimate for the rate (optional; default = 10%).

Example:
Calculate the annual interest rate for a ₹20,000 loan repaid over 5 years with annual payments of
₹5,000.
Parameter Value

Nper 5

PMT -5,000

PV 20,000

Formula: =RATE(5, -5000, 20000)

 Figure 134

Figure 135

Result:
Rate = 8% (annual interest rate).
4. Number of Periods (NPER)

Calculates the number of periods required to pay off a loan or reach an investment goal. Formula:

=NPER(rate, pmt, pv, [fv], [type])

Example:
How many years will it take to repay a Rs.50,000 loan with annual payments of Rs.10,000 at 5%
interest?
Parameter Value

Rate 5%

PMT -10,000

PV 50,000

Formula: =NPER(5%, -10000, 50000)

Figure 136
 Figure 137

Result:
Nper = 5.896 years.

5. Payment (PMT)

Calculates the fixed periodic payment for a loan or investment.

Formula: =PMT(rate, nper, pv, [fv], [type])

Example:
Calculate the annual payment to repay a Rs.30,000 loan over 8 years at 4% interest.
Parameter Value

Rate 4%

Nper 8

PV -30,000

Formula: =PMT(4%, 8, -30000)

 Figure 138

Figure 139

Result:
PMT = Rs.4,455.83 (annual payment).
6. Principal Payment (PPMT)

Calculates the principal portion of a payment for a specific period.

Formula: =PPMT(rate, per, nper, pv, [fv], [type])

• per: The specific payment period.

Example:
For a Rs.20,000 loan at 6% over 5 years, find the principal repaid in Year 2.
Parameter Value

Rate 6%

Per 2

Nper 5

PV -20,000

Formula: =PPMT(6%, 2, 5, -20000)

Figure 140
 Figure 141

Result:
PPMT = Rs.3,760.80 (principal repayment in Year 2).

7. Interest Payment (IPMT)

Calculates the interest portion of a payment for a specific period.

Formula: =IPMT(rate, per, nper, pv, [fv], [type])

Example:

Parameter Value

Rate 6%

Per 2

Nper 5
 PV -20,000

find the interest paid in Year 2.

Formula: =IPMT(6%, 2, 5, -20000)

Figure 142

Figure 143
Result:
IPMT = Rs.987.12 (interest paid in Year 2).

RATIO ANALYSIS

Ratio analysis is a key financial tool used to assess a company's performance, financial health, and
efficiency. Ratios are calculated using data from financial statements (balance sheet, income
statement, and cash flow statement). Below is a comprehensive explanation of all major financial
ratios categorized into liquidity, leverage, efficiency, profitability, and coverage ratios, along with
formulas, steps, and examples.

1. Liquidity Ratios

Liquidity ratios measure a company’s ability to meet short-term obligations. a.

Current Ratio:

Formula:

Current Ratio= Current Assets

Current Liabilities

Example:
Current Assets= Rs.150,000 Current Liabilities=

Rs.60,000 Steps:

1. Identify current assets and current liabilities from the balance sheet.
2. Divide current assets by current liabilities.
 Figure 144

Figure 145

Interpretation:
A ratio of 2.5 indicates the company has 2.5 times more assets than liabilities, showing strong
liquidity.

b. Quick Ratio (Acid Test):- Formula:

Quick Assets =Current Assets−Inventory

Quick ratio= quick assets

Current Liabilities

Example:
Current Assets = Rs.150,000
Inventory = Rs.50,000

Current Liabilities= Rs.60,000

Steps:

1. Subtract inventory from current assets.

2. Divide the result by current liabilities.

Figure 146
 Figure 147

Interpretation:
A quick ratio of 1.67 indicates that the company can cover its liabilities without relying on inventory
sales.

2. Leverage Ratios (Solvency Ratios)

Leverage ratios measure how much debt a company uses to finance its operations relative to equity
or assets.

a. Debt-to-Equity Ratio (D/E) Formula:

Debt-to-Equity Ratio= Total Liabilities

Shareholders’ Fund
Example:

Total Liabilities = Rs.100,000

Shareholders' Equity= Rs.50,000

Steps:

1. Identify total liabilities and shareholders' equity from the balance sheet.
2. Divide total liabilities by shareholders' equity.
 Figure 148

Figure 149

Interpretation:
A ratio of 2 indicates that for every rupee of equity, the company has two rupees of debt, suggesting
high leverage.

b. Debt-to-Assets Ratio Formula:

Debt to asset Ratio= Total Debt

Total Assets
Example:
Total Liabilities =Rs.100,000
Total Assets = Rs.150,000 Steps:

1. Identify total liabilities and total assets from the balance sheet.
2. Divide total liabilities by total assets.

Figure 150

Figure 151
Interpretation:
A ratio of 0.67 means that 67% of the company's assets are financed by debt.

3. Efficiency Ratios

Efficiency ratios evaluate how effectively a company uses its assets and resources.

a. Inventory Turnover Ratio

Formula:
Cost of Goods Sold Inventory

Turnover Ratio= Average Inventory

Example:
Cost of Goods Sold = Rs.50,000
Beginning Inventory = Rs.10,000
Ending Inventory = Rs.15,000 Steps:

1. Identify cost of goods sold from the income statement.

2. Calculate average inventory by averaging beginning and ending inventory.
3. Divide cost of goods sold by average inventory.

Figure 152
 Figure 153

Interpretation:
An inventory turnover ratio of 4 indicates that inventory sells and is replaced four times per year.

b. Asset Turnover Ratio

Formula:
Total Revenue
Asset turnover ratio =

Assets

Example:
Total Revenue = Rs.100,000
Total Assets = Rs.50,000 Steps:

1. Identify total revenue from the income statement.

2. Identify total assets from the balance sheet.
 Figure 154

Figure 155

Interpretation:
An asset turnover ratio of 2 means the company generates Rs.2 in revenue for every rupee of assets.

4. Profitability Ratios

Profitability ratios assess a company's ability to generate earnings.

 a. Gross Margin Ratio

Formula:

Gross Profit
Gross Margin Ratio=
Total Revenue

Example:
Gross Profit = Rs.20,000 Total Revenue

= Rs.100,000 Steps:

1. Identify gross profit and total revenue from the income statement.
2. Divide gross profit by total revenue.

Figure 156
 Figure 157

Interpretation:
A gross margin ratio of 0.20 (or 20%) indicates that 20% of each Rupees sold is gross profit.

b. Operating Profit Margin Ratio

Formula:

Operating Income
Operating Profit Margin Ratio=
Total Revenue

Example:

Operating Income = Rs.15,000

Total Revenue= Rs.100,000 Steps:

1. Identify operating income and total revenue from the income statement.
2. Divide operating income by total revenue.
 Figure 158

Figure 159

Interpretation:
An operating profit margin ratio of 0.15 (or 15%) means that 15% of each Rupees sold is operating
profit.
c. Return on Equity (ROE)

Formula:

Net Income
Return on Equity (ROE)=
Shareholders’ Equity

Example:
Net Income = Rs.10,000

Shareholders' Equity = Rs.50,000 Steps:

1. Identify net income from the income statement.

2. Identify shareholders' equity from the balance sheet.
3. Divide net income by shareholders' equity.

Figure 160
 Figure 161

Interpretation:
An ROE of 0.20 (or 20%) indicates that for every Rupees of equity, the company generates a net
income of 20 cents.

d. Return on Assets (ROA) Formula:

Return on Assets (ROA)= Net Income

Total Assets
Example:
Net Income = Rs.10,000 Total Assets

= Rs.50,000 Steps:

1. Identify net income from the income statement.

2. Identify total assets from the balance sheet.
3. Divide net income by total assets.
 Figure 162

Figure 163

Interpretation:
An ROA of 0.20 (or 20%) means that for every rupee of assets, the company generates a net income
of 20 paise.
5. Coverage Ratios

Coverage ratios assess a company's ability to meet its financial obligations.

a. Interest Coverage Ratio Formula:

Interest Coverage Ratio= EBIT

Interest Expense

Example:
EBIT = Rs.20,000
Interest Expense = Rs.5,000 Steps:

1. Identify EBIT (Earnings Before Interest and Taxes) from the income statement.
2. Identify interest expense from the income statement.
3. Divide EBIT by interest expense.

Figure 164
 Figure 165

Interpretation:
An interest coverage ratio of 4 indicates that the company can cover its interest expenses four times
over.

Weighted Average Cost of Capital (WACC)

The Weighted Average Cost of Capital (WACC) is a financial metric that represents the average
cost of capital for a company, considering both debt and equity financing. It is used to evaluate
investment projects and determine the required rate of return for shareholders and bondholders.

WACC Formula

The WACC formula is as follows:

WACC= (E/V)×Re+(D/V)×Rd×(1−Tc)WACC Where:

• E: Market value of equity.

• D: Market value of debt.
• V: Total market value of the company (E + D).
• R_e: Cost of equity.
• R_d: Cost of debt.
 • T_c: Corporate tax rate.

Steps to Calculate WACC

1. Determine Market Values:

 Calculate the market value of equity (E) by multiplying the current stock price by the number
of outstanding shares.
 Determine the market value of debt (D), which may involve estimating the current market
value of bonds or other debt instruments.
2. Calculate Total Market Value (V): Add the market values of equity and debt:
V=E+DV = E + DV=E+D.
3. Determine Costs of Capital:
 Estimate the cost of equity (R_e) using the Capital Asset Pricing Model (CAPM) or
other methods.
 Determine the cost of debt (R_d) by looking at the interest rate on existing debt.
4. Calculate Weights:
 The weight of equity is EV\frac{E}{V}VE.
 The weight of debt is DV\frac{D}{V}VD.
5. Apply Corporate Tax Rate:
 Adjust the cost of debt by the corporate tax rate: Rd×(1−Tc)R_d \times (1 -
T_c)Rd×(1−Tc).
6. Compute WACC: o Plug the values into the WACC
formula.

Example Calculation

Suppose a company has:

• Market Value of Equity (E): Rs.1,000,000

• Market Value of Debt (D): Rs.2,000,000
• Cost of Equity (R_e): 15%
• Cost of Debt (R_d): 7%
• Corporate Tax Rate (T_c): 25%

Step-by-Step Calculation:
 1. Total Market Value (V): V=E+D=1,000,000+2,000,000=3,000,000

Figure 166

2. Weights:
 Equity Weight: EV=1,000,000 / 3,000,000=0.3333
 Debt Weight: DV=2,000,000 / 3,000,000=0.6667

Figure 167
3. Adjusted Cost of Debt: Rd×(1−Tc)=7%×(1−0.25)=5.25%R_d \times (1 - T_c) = 7\% \times
(1 - 0.25) = 5.25\%Rd×(1−Tc)=7%×(1−0.25)=5.25%

Figure 168

4. WACC Calculation:

WACC=(0.3333×15%)+(0.6667×5.25%)WACC =8.5%

Figure 169
 Figure 170

Interpretation

• A WACC of 8.5% means that the company must earn at least this rate on its investments to
satisfy both shareholders and bondholders.
• WACC is used as a hurdle rate for evaluating investment projects and determining whether
they are likely to generate sufficient returns.

Capital Asset Pricing Model (CAPM)

The Capital Asset Pricing Model (CAPM) is a foundational concept in finance that describes the
relationship between the expected return of an investment and its systematic risk. It is widely used to
estimate the cost of equity for companies and evaluate investment opportunities.

CAPM Formula

The CAPM formula is as follows:

Expected Return=Rf+β×(Rm−Rf)

• R_f: Risk-free rate (e.g., return on government bonds).

• β (Beta): Sensitivity of the asset's returns to market movements.
• R_m: Expected return of the market.
 • (R_m - R_f): Equity risk premium (ERP).

Components of CAPM

1. Risk-Free Rate (R_f):

 Represents the return on a risk-free asset, typically government bonds.
 Serves as the baseline return that investors can expect without taking on any risk.

2. Beta (β):
 Measures the volatility of an asset relative to the overall market.
 A beta of 1 indicates that the asset moves in line with the market.
 A beta greater than 1 means the asset is more volatile than the market.
 A beta less than 1 indicates lower volatility.
3. Market Return (R_m):
 The expected return of the market as a whole.
 Often estimated using historical averages of market indices like the S&P 500.
4. Equity Risk Premium (ERP):
 The excess return demanded by investors for holding a risky asset over a risk-free
asset.
 Calculated as Rm−Rf

Example Calculation

Suppose you want to calculate the expected return on a stock with the following parameters:
• Risk-Free Rate (R_f): 2%
• Beta (β): 1.2
• Expected Market Return (R_m): 8%

Calculation:

1. Equity Risk Premium (ERP): 8%−2%=6%

 Figure 171

2. Expected Return: 2%+1.2×6%=2%+7.2%=9.2%

Figure 172
 Figure 173

Result:
The expected return on this stock is 9.2%.

Assumptions of CAPM

1. Efficient Markets: Investors have access to all relevant information, and prices reflect this
information.
2. Rational Investors: Investors are risk-averse and seek to maximize returns for a given level
of risk.
3. No Transaction Costs: Buying and selling securities does not incur costs.
4. Diversification: Investors can eliminate unsystematic risk through diversification.

Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) analysis is a valuation method used to estimate the value of an
investment by calculating the present value of its expected future cash flows. It is widely applied in
finance to evaluate investment opportunities, mergers and acquisitions, and securities.

What is Discounted Cash Flow (DCF)?

DCF is a financial analysis technique that computes the present value of future cash flows using a
discount rate. This rate reflects the time value of money and the risk associated with the investment.
The DCF model helps investors determine whether an investment's future cash flows justify its
current cost.

Steps to Calculate DCF

1. Estimate Future Cash Flows: Predict the cash inflows and outflows for each year of the
investment period.

2. Determine the Discount Rate:

 Use the WACC or another appropriate discount rate reflecting the investment's risk.

3. Calculate Present Value of Each Cash Flow:

 Use the DCF formula to discount each year's cash flow to its present value.

4. Sum the Present Values:

 Add up the present values of all cash flows to get the total present value of the investment.

Example Calculation

Suppose you want to evaluate an investment with the following parameters:

Cash Flow Year 1: Rs.225,000

Cash Flow Year 2: Rs.247,500 (10% increase)

Cash Flow Year 3: Rs.272,250 (10% increase)

Cash Flow Year 4: Rs.299,775 (10% increase)

Cash Flow Year 5: Rs.329,853 (10% increase)

Discount Rate (r): 8%

Steps for calculation:-

1) Year1 :- 225000/ (1.08)^1 = 225000/ 1.08 = 208333.3333

 Figure 174

Figure 175

2) Year2:- 247500/ (1.08)^2= 247500/ 1.1664=212191.358

 Figure 176

Figure 177

3) Year3 :- 272250/ (1.08)^3= 272250/1.2597=216120.8276

 Figure 178

Figure 179

4) Year4:- 299775/ (1.08)^4= 299775/1.3605=220343.5741

 Figure 180

Figure 181

5) Year5:- 329853/(1.08)^5= 329853/1.4603= 224492.4093

Total Present Value= 208333.3333+ 212191.358+ 216120.8276+ 220343.5741+ 224492.4093=

1081481.502
Interpretation
• The total present value of 1081481.502 represents the investment's value today based on its
future cash flows.

• If this value is greater than the initial investment cost, the investment is considered viable.

Depreciation

Depreciation is a financial concept used to allocate the cost of a tangible asset over its useful life.
Two common methods of depreciation are the Straight Line Method (SLM) and the Written Down
Value Method (WDV).

1. Straight Line Method (SLM)

The SLM is a simple method where the cost of an asset is depreciated evenly over its useful life. It is
widely used due to its simplicity and consistency.

Formula:

SLM = (Cost of Asset - Salvage Value) / Useful Life Example:

Cost of Asset: ₹100,000

Salvage Value: 20000

Useful Life: 8 years Calculation:

SLM = Asset Value / Useful life = depreciation per year 100000-

20000 / 8= 10000 per year Steps:

1. Determine Asset Cost: The initial purchase price of the asset.

 Figure 182

2. Estimate Salvage Value: The asset's value at the end of its useful life.

Figure 183

3. Determine Useful Life: The number of years the asset is expected to be used.
 Figure 184

4. Calculate Depreciation: Divide the depreciable base by the useful life.

Figure 185
 Figure 186

Result:
The annual depreciation expense is 10,000.

2. Written Down Value Method (WDV)

The WDV method, also known as the declining balance method, depreciates assets by applying a
fixed percentage to the asset's current book value each year.

Formula: WDV = Book Value at Beginning of Year * Depreciation Rate Example:

• Cost of Asset: ₹100,000

• Depreciation Rate: 20% per annum
• Useful Life: 5 years

Steps:

• Determine Initial Book Value: The asset's initial cost.

 Figure 187

• Choose a Depreciation Rate: A percentage of the asset's value to be depreciated annually.

Figure 188

• Calculate Depreciation: Multiply the current book value by the depreciation rate.
 Figure 189

Figure 190

• Update Book Value: Subtract the depreciation from the previous year's book value.
 Figure 191

Figure 192

Year 1 Calculation:

WDV = 1,00,000 * 20% = 20,000

New Book Value = 1,00,000 - 20,000 = 80,000
Figure 193
 Figure 194

Figure 195

Figure 196

Year 2 Calculation:

WDV = 80,000 * 20% = 16,000

New Book Value = 80,000 – 16,000 = 64,000
Figure 197

Figure 198
 Figure 199

Figure 200

Year 3 Calculation
WDV = 64,000 * 20% = 12,800
New Book Value = 64,000 12,800 = 51,200
 Figure 201

Figure 202

168
 Figure 203

Figure 204

Year 4 Calculation
WDV = 51,200 * 20% = 10,240
–

169
New Book Value = 51,200 10,240 = 40,960

Figure 205

Figure 206

170
 Figure 207

Figure 208

Year 5 Calculation

171
WDV = 40,960 * 20% = 8,192 New Book Value = 80,000 8,192 = 32768

Figure 209

172
 Figure 210

Figure 211

Figure 212

173
174