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TRANSCRIPT
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Financial Modeling in Excel
2011
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Agenda
• Introduction and Context
• Efficiently using excel – preparation for modeling
• Excel – Summarization Using Pivot Tables
2
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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.
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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)
Financial Modeling in Excel
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.
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…Key Associations
IIM Calcutta (2010-11)
Financial Modeling in Excel
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)
Financial Modeling in Excel
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)
Financial Modeling in Excel
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)
Financial Modeling in Excel
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.
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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
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Agenda
• Introduction and context
• Efficiently using excel – preparation for modeling
• Excel – Summarization Using Pivot Tables
7
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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
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Lets take a moment to understand components of Excel
Toolbar Formula Bar
Cells
Name
Worksheet
Excel 2007 Interface
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Excel 2003 and 2007 are being widely used in the industry. Most of features of 2007 are backward compatible
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… 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
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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
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Moving across toolbars in Excel 2003 and 2007
• Press Alt Key to activate Main toolbar
– For Example, Alt F for file
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• Use CTRL + TAB to Go to
next toolbar
• Use Arrow key to navigate
further
In 2007, Pressing the “ALT” key automatically shows the options
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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
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Refer Worksheet A
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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
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Arrays in Excel
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• 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
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Frequently Used Array functions
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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
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Using the VLookUp Function
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• 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
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Using the HLookup Function
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• 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
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Index & Match Functions
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• 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
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Use Index and Match – Any Column & row Lookup
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• 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
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Agenda
• Introduction and context
• Efficiently using excel – preparation for modeling
• Excel – Summarization Using Pivot Tables
21
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Pivot Tables – An introduction
Easy Summarization & Analysis Tool
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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
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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
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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
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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
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Filtering for Particular Rows/ Columns
• Use Example I
– Calculate Region Wise, Year wise sales
– Give Product wise Data for 2008 Only
– Get Data only for Delhi
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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
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Give the average sales in regions
• Use Example I
– Calculate Region Wise, Year
wise sales
– Give Product wise Data for
2008 Only
– Get Data only for Delhi
– Instead of Total, give the
average sales
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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
– Calculate Region Wise, Year wise sales
– Give Product wise Data for 2008 Only
– Get Data only for Delhi
– Instead of Total, give the average sales
– Calculate the forecast for sales in 2009
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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
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Important to understand what kind of error can occur and handle it properly
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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”
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