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Financial Modeling

Introduction
Most work done by business analysts can be categorized as either reporting (providing required data) or
analysis (building models to help your organization make the right decisions). In today's world, most business
reporting and modeling is done using Microsoft Excel. Completing this course should increase your
ability to use Excel to create reports and/or develop powerful business models. Even if you have never
used Excel before, we will teach you how to use Excel's powerful functions and chart capabilities to solve
a myriad of business problems.
If you are a student, then during your MBA program you will have to build many models to analyze
cases or build spreadsheet models in courses such as finance, marketing, accounting, operations and
management science. We will give you the spreadsheet knowledge needed to tackle the many analytical
questions that arise during your course work.
If you are a business analyst, this course will introduce you to many new concepts and tools that will
help you more quickly and accurately summarize business data. The course will also teach you how to
develop spreadsheet models that will help your organization make better decisions.

The Company
Le Napoleon is a bakery specializing in French pastries, now owned by a partnership that includes its
two ex-pat French pastry chefs, Michel Toure, whose family moved to Strasbourg from Mali when he
was a small child, and Anne-Sophie Le Nguyen, who grew up in the Cognac region.
The two met each other not long after moving to the U.S. and found that not only did they have a shared
dream of business ownership but that each had strengths to offset the other's weaknesses. Both have
exceedingly refined tastes, but their success lies more in Michel's way with obscure ingredients and
techniques and Anne-Sophie's ambition and exceptional understanding of the customer.
Le Napoleon got its start in a business incubator, and at first, the bakery had just a small stand at the
weekly farmer's market. Soon, though, satisfied customers began to place special orders. When Michel
and Anne-Sophia had to turn down their third wedding cake request, they decided to sit down and work
out a plan to move out of the business incubator and into their own, dedicated location. The business is
now thriving.
In this course, we will use operations at Le Napoleon to illustrate some of the problems that businesses
both large and small must faceand Excel to illustrate solutions to those problems.

Spreadsheet Modeling Overview


In this course we begin by familiarizing you with the Excel environment and showing you how to move
around in a spreadsheet. If you have used Excel extensively you may choose to skip these chapters. In
the Excel Formulas and Functions sections, we thoroughly explain how to enter and copy formulas in
Excel. We also will teach you about Excel's many powerful functions including little known functions
such as MATCH and INDEX. Just like the key to a great recipe is the proper use of that special spice or
ingredient, the key to building a spreadsheet model that solves a business problem is often mastery of
Excel's many powerful functions.
In the section on Excel Functions we cover Excel's many tools that can be used to create great looking
and informative reports (conditional formatting, pivot tables, subtotals, SUMIFs and COUNTIFs functions,

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etc.). In the Charts section, we show you how to use Excel to create informative charts. In the next
section, you will learn how to import word files and Internet data into the Excel environment.
The Art of Spreadsheet Modeling section contains an extensive explanation of how to build spreadsheet
models to solve a business problem. For example, should a bakery open a new outlet? How should we plan to
save for retirement? In this section, we cover many exciting modeling tools such as Auditing, spinner
controls, Goal Seek, Data Validation and Data Tables. The Using Excel Solver section covers the Excel Solver
tool which is used to find the optimal solution to a problem. The Three-Dimensional Formulas section
explains how 3D formulas and Excel's Table feature can make you much more efficient when you
develop spreadsheet models. Finally, the Monte Carlo Simulation closes the course by introducing you
to a really efficient model building tool. In that section, you will learn how Monte Carlo simulation can
be used to model the effect of uncertainty on business decisions.
The spreadsheet is the canvas for the business analyst. This course gives you the "artistic skills" needed
to develop state of the art spreadsheet models for solving business problems.

The Excel Environment


Even simple workbook tasks will become tedious and prone to errors if you do not know how to use
Excel efficiently. In this chapter we will introduce the following aspects of the Excel environment and
basic efficiency measures.


Opening workbooks

The Excel 2007 Ribbon and the Quick Access Toolbar

Working with worksheets

Workbook - and worksheet-level navigation

Printing worksheets and workbooks

Saving workbooks as Excel and other file types

Throughout this course, we will continue to present ways to increase not only your proficiency in but
also your efficiency with Excel.

Opening a workbook
To open a workbook, use any of the following techniques.

Double-click its icon in Windows Explorer. This will work as long as Windows knows that the
file can be opened in Excel.

If Excel is running, hit Ctrl-O or the Office Button (the round button in the upper-left-hand
corner of the Excel window) and browse for the file. You can use the "Files of type" drop-down
box to view a number of different file types.

If Excel is running and the icon representing your file is the generic Windows icon, but you
know that Excel can read it, it might be easiest to drag the icon into the Excel window. You can
use this method for any file type that Excel can open.

Open the Excel Environment.xlsx file by any of the above methods. This file contains data from
questionnaires completed by customers of Le Napoleon. Leave this file open, as we will continue to
work with it.

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The Excel 2007 Ribbon


The Ribbon in each of the Office programs organizes commonly used commands and features into
categories. Each category is represented by a tab, and each tab contains groups of subcategories.
For example, in Excel, the Review tab contains three groupsProofing, Comments, and Changes. Each
contains features commonly needed when reviewing others' workbooks, or before sending your own
workbooks out for review or use by others.
Take some time to explore the different tabs.

The Quick Access Toolbar


The Quick Access Toolbar is a customizable docking place for features and commands that you use most
frequently. It is found just to the right of the Office Button and by default displays buttons for Save,
Undo, and Redo. No matter which of the Ribbon's tabs is selected, the Quick Access Toolbar is always
visible.
Explore the customization options for the Quick Access Toolbar. In doing so, look at not only Popular
Commands but also All Commands. Once you configure the Quick Access Toolbar to suit your needs,
you are only a click away from the features that you use the most.

Worksheets
Each workbook file contains one or more tabbed worksheets. You can easily set the number of
worksheets that you want new workbooks to contain, rename sheets, and move and delete worksheets.
Note that spaces, dashes, and certain other special characters are legal in sheet names, while other
characters, such as \ / ? are not. Also, although we have opted to use spaces in the sheet names in our
example file, know that this can complicate more advanced uses of the program.
In the Excel Environment.xlsx file, rename the bakery1 worksheet to bakery mon-thurs, bakery2 to bakery frisun; mall1 to mall mon-thurs and mall2 to mall fri-sun.
Move sheets to be in this order: bakery mon-thurs, bakery fri-sun, mall mon-thurs, mall fri-sun.
Rename Sheet1 to key. Move this sheet to the beginning of the workbook.
You can also move or copy worksheets into another workbook. This is handy if you are working on a
team and need to bring people's individual work into a single file.
Insert a new sheet and call it summary. Move it to the beginning of the workbook, before the key
worksheet. We will leave this sheet blank for now.

Moving Around a Worksheet and Workbook


Learning a few hotkeys, however, will allow you to keep your hands on the keyboard, which many
people find improves efficiency. Some navigation hotkeys are
 Ctrl-Home: Selects cell A1
 Ctrl-End: Selects the cell at the intersection of the last-used column and last-used row on the
worksheet
 Page Up: Scrolls up one screen
 Page Down: Scrolls down one screen
 Alt-Page Up: Scrolls left one screen
 Alt-Page Down: Scrolls right one screen
 Ctrl-Page Up: Selects the previous worksheet
 Ctrl-Page Down: Selects the next worksheet
 Ctrl-Tab: Moves to the next open Excel workbook
Pressing the Alt key once will allow you to quickly select a ribbon using its letter key, and then select
items on that ribbon using each item's letter key. Pressing the M key would open the Formulas ribbon,
and items on that ribbon would then be identified by their keys.
In the Excel Environment.xlsx file, starting with the bakery mon-thurs worksheet
 Use Ctrl-Home to move to cell A1 and Ctrl-End to move to the last cell in the data range (observe
that this may be a blank cell).

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 Use Ctrl-Home again to return to cell A1.


 Use Page Down to scan through the data one screen at a time.
 Use Alt-Page Down and Alt-Page Up to scroll left and right.
 Finally, use Ctrl-Page Down to move to the next worksheet.
Continue to practice these navigation hotkeys in the Excel Environment.xlsx file. You might find it useful
to keep a list of these hotkeys near your computer until using them becomes second nature.

Printing a Worksheet
In a later chapter, we will discuss print areas and page setup.
View the key worksheet in Print Preview. Note that before printing this worksheet, we will probably
want to make some adjustments. Don't click Print; instead click the Close Print Preview button on the
Print Preview tab.

Saving a Workbook File


To save a workbook, hit Ctrl-S, click the Save icon on the Quick Access Toolbar. Function Key F12 helps us
to save as the workbook.
Save Excel Environment.xlsx as an .xls file.
Saving Exercise

Working with Data: Basic Techniques


Our main goal in this chapter is to introduce efficient methods for working with cells and ranges. In this
chapter, we will use the file Working with Data.xlsx, so please download this workbook now. Please
follow along as we outline changes to the workbook.

Cells and Ranges


Each rectangular block in which data can be entered is a cell. Each cell has an address. In most
configurations of the program, this is the letter of the column and the number of the row that intersect at
that cell.
Excel 2007 spreadsheets have 1,048,576 rows and 16,384 columns or over 17 million cells. By
comparison, Excel 2003 spreadsheets have 65,536 rows and 256 columns.
A block of cells that is to be treated as a unit in some operation (e.g., formatting, summation) is called a
range. Ranges are known by the addresses of their upper-left-most cell and lower-right-most cell. A
colon serves to separate the two addresses.

Selecting Ranges
There are a number of ways to select ranges of cells. In this section, we will explore the selection of
contiguous cells using the selection pointer as well as the Ctrl and Shift keys. We will also discuss a
means of easily selecting ranges within a large dataset.

Selection Pointer
On the bakery mon-thurs worksheet, select the range F2:F11. Check the status bar for statistics on this
range.
While we are on the topic of statistical functions, it is worth pointing out that zero values are included in
averages and other statistics, whereas blank cells are not.

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Change your status bar settings so that the five statistics mentioned above average, count, min, max,
and sum are displayed in the status bar when data is selected.

Ctrl and Shift


Holding down the Ctrl-key tells Excel that you want to jump to the end of the range. Holding down the
Shift-key tells Excel to select all of the intermediate cells along the way.


Practice with Ctrl, Shift, and Ctrl-Shift. On the key worksheet, select cell A2. Hold down just the
Ctrl key and hit the left arrow key. The selected cell should now be R2, the last cell in the
contiguous range A2:R2.

Select cell A2 again. This time, hold down just the Shift key and hit the left arrow key. Keeping
the Shift key held down, hit the left arrow key a few more times. You should see that Excel
advances one cell at a time, adding cells to the selection.

Select cell A2 a final time. Hold down both Ctrl and Shift, and hit the left arrow key. Excel both
"moves" all the way to R2 (Ctrl key behavior) and retains the selection of the intermediate cells
(Shift key behavior).

In cases where there are blanks in the data, it is helpful to work with a split screen, as shown in the next
topic.

Splitting the Screen


The Split button on the View tab, in the Window group, can also be used to quickly split the screen both
horizontally and vertically.
Check to see that your installation of Excel is configured to show in the status bar at least the minimum,
maximum, and average of a selected range of data. Split the screen of the bakery fri-sun, mall mon-thurs,
and mall fri-sun worksheets. Then, by selecting data on each of the four questionnaire results worksheets,
quickly compare basic statistics for the results of question (10) in column K, Satisfaction with variety of
goods, on a scale of 1 to 5.
There are, of course, functions and other ways of obtaining such statistics. But since selecting cells is
extremely fast, it can serve as a good quick auditing tool, to double-check the results of functions.
Alternatively, if the screen is split, click the Split button on the View tab to un-split it.

Selecting All Cells in a Dataset Using Shortcut Keys


On the bakery mon-thurs worksheet, select any non-blank cell and use one of the two techniques described
to select the entire dataset. Then select a blank cell within the dataset and try this again. Either way, the
whole dataset should be selected.

Selecting All Cells on a Worksheet


The Select All button allows you to quickly select all cells on a worksheet.

Selecting Noncontiguous Ranges


Sometimes we want to select noncontiguous ranges, for example, to format a number of isolated cells at
once, or to include them in a function. In this section, we will explore two ways to select such ranges.

Using the Ctrl Key


On the bakery mon-thurs worksheet, select both B2:B8 and M2:M8.

Using F8 (Extend Selection) and Shift-F8 (Add to Selection)


You might like this technique.
The function key F8 and Shift-F8 can also be used to select ranges, including noncontiguous ranges.
When you hit F8 the first time, Excel enters "Extend Selection" mode and behaves as if you had the Shift
key held down.

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Once you have the selection that you want, hit F8 a second time to exit Extend Selection mode. Your
selection will remain active unless you select another cell. If you want to select a second range, use the
trick described next, Shift-F8.
Hitting Shift+F8 puts Excel in Add to Selection mode. In other words, you can


Use F8 to select a range (remembering to hit F8 to exit Extend Selection mode when you are
ready).

Use Shift+F8 to select a second range (which can also then be done with the F8/Extend Selection
technique).

Selecting Cells and Named Ranges


In this section, we will explore two ways of quickly selecting cells. These allow us to select a cell based
on its address (e.g., C24) or a cell or range of cells based on an assigned name (e.g., revenue;
survey_data).

In Name Box
The Name Box, found just above the header for column A, shows the name of the currently selected cell
or range (more on named ranges in a later chapter).
By typing a cell address or range name in the Name Box and hitting Enter, you can select (and jump to)
cells or named ranges.
On the bakery mon-thurs worksheet, type L97, and hit Enter. Excel should take you to that cell. Now
return to the Name Box and click its drop-down arrow. You should see questions as an option; this is
because we have assigned the name questions to a range. Choose questions from the drop-down list to
jump to this range.

With the F5 Key (Go To Dialog Box)


The function key F5 brings up the Go To dialog box, which can be used to select cells and jump to
named ranges. Simply hit F5 and choose the desired range name from the list displayed in the Go to:
box, or enter the desired cell address in the Reference: box.
On the bakery mon-thurs worksheet, use the F5 key to go to cell G99. Then use it to go to the range named
questions.
Note that the Go To dialog box keeps a running list of cells visited in the current Excel session.

Selecting Otherwise Difficult to Select Cells with Go To - Special


The Go To dialog box can also be used to select cells that would otherwise be fairly difficult to
comprehensively identify and select. Clicking the Special button at the bottom-left corner of the Go To
dialog box brings up a list of types of cells that users commonly need to select, such as blank cells, cells
containing errors, cells containing comments, and many others.
Assume management at Le Napoleon wanted to add shading to the blank cells in the bakery mon-thurs
dataset, to see more easily whether just a few or many items on their questionnaire are being left blank.
(Incidentally, there is a function to return the number of blank cells in a range: the COUNTBLANK
function.) It would be very time-consuming and tedious to select each blank cell by hand. This would
also be prone to error some blank cells would likely be left out, and some cells containing values
would likely be selected by mistake. The Special options in the Go To dialog box can take most of the
work out of this task.
On the bakery mon-thurs worksheet, select any cell in the block of data. Hit the F5 key and click the
Special button. Choose Blanks, and hit OK. All blank cells within the block of data should now be
selected. Do not click any cells, or you will lose the selection! Now choose a fill color from the palette on
the Home tab (in the Font group, under the selector for font size), and all blank cells will be shaded.
(Conditional formatting, to be introduced in a future chapter, would be another way of shading these blank cells)

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Filling Series
For commonly used series and entries that Excel can populate to be part of a series (e.g., Bakery Item 1,
Bakery Item 2), you can use the Autofill handle to fill in as much of the series as you need. The Autofill
handle appears at the bottom right of a selected cell or range of cells; it appears to be a small square
superimposed on that corner of the black border around the selected cell.
When the pointer hovers over the Autofill handle, it changes shape to resemble a cross.
Like dates, times can be autofilled, with Excel augmenting the value in each cell by one hour. Unlike
with dates, however, the Auto Fill Options will not allow you to change the increment to fifteen minutes
or a half-hour.
This same technique, specifying the first two elements of the series before autofilling, could be used if
you wanted to create a series like {1, 2, 3 . . .} or {5, 10, 15 . . .}.
Another way to create a series like {1, 2, 3 . . .} is to use the Fill Series command. This is especially useful
if you often find yourself overshooting the mark when you drag with the mouse.
In addition, you can define your own custom fill series. For example, Le Napoleon might want to define
a series based on a list of specialty pastries, hourly employees' names, or names of restaurants that
procure dessert offerings from the bakery. Once the series is defined, only one element from the series
would need to be entered manually; the rest could be autofilled.


On the bakery mon-thurs worksheet, edit Question_1 to read Question 1. Fill to complete the series
through Question 16.

Select the bakery fri-sun worksheet. In column A, below the Respondent label, create values from 1 to
100 via autofill.

Do the same for the mall mon-thurs worksheet (again using numbers from 1 to 100), but this time,
double-click rather than dragging the autofill handle. Because there is a block of contiguous data
in the adjacent column, Excel fills the series to the end of that block.

For the mall fri-sun worksheet, use Fill Series to create numbers from 1 to 100.

Download the file Working with Data_products.xlsx. Using the data on Sheet1, create a custom
fill series. Test your series to see that it works. Then, if you wish, feel free to delete the series (via
Excel Options).

Copying and Moving Cell Entries


To copy and paste data, select the range to be copied and use Ctrl-C, the Copy button on the Home tab,
or the right-click context menu to copy the data.
Then select the upper-right-most cell in your desired destination range, and use Ctrl-V, the Paste button
on the Home tab, or the right-click context menu to paste the data.
To move data, you can Cut rather than Copy, and then Paste.
Alternatively, you can use the move pointer:

The Undo Command


Many operations can be undone using either Ctrl-Z or the Undo button on the Quick Access Toolbar:
Or, if you need to undo multiple operations, the drop-down list next to the Undo button:
Excel 2007 allows undo operations even after a save, but not once the file has been closed.
Be aware that the undo stack is shared by all open workbooks; i.e., you cannot undo only a change to
Book1 if after that change you made a change to Book2. You could, however, undo the change to Book2
and then the change to Book1.

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Increasing Spreadsheet Readability


It is often the case that the person who designs a spreadsheet application is not the end user, or the only
user, of the file. Designing for usability by others is important. Among other considerations, you might
want to minimize the amount of time it takes others to understand how you have organized a workbook,
or limit the ways in which they can introduce errors into a workbook. You might want to control the
kind of data that can be entered in cells, prevent users from deleting formulas, or even keep the
workbook window from being resized.
In this chapter, we will look at a few simple things you can do to make your worksheets more userfriendly in terms of simple readability. We will continue to work with the data from Le Napoleon's
questionnaire.
We will use the file Increasing Spreadsheet Readability.xlsx, so please download this workbook now.
Please follow along as we outline changes to the workbook.

Working with Rows and Columns


The summary worksheet needs a better indication that the figures on that sheet are averages of the
questionnaire data for which an average is a meaningful measure. We will want to insert some rows to
hold that information and set it off from the table of averages.
The Insert button and Delete button on the Home tab, in the Cells group, can also be used to insert and
delete rows.
On the summary worksheet, insert one row above row 1. Enter the text "Average for questions (5)-(11)"
in cell A1.
On the summary worksheet, increase the height of row 2. Select columns A through H and double-click to
auto-adjust them to their contents. The result is clearly undesirable. Click the Undo button. Later in this
chapter, we will wrap the text in rows 2 and 4 before adjusting the column widths.
Assume an employee at Le Napoleon is analyzing the questionnaire data on the bakery mon-thurs
worksheet and wants to get an opinion from someone outside the company. Clearly Le Napoleon would
want to keep customers' names and addresses private. Assuming that the interaction is to take place in
person (i.e., the employee is not sending the workbook file outside the company), one quick solution
would be to temporarily hide those columns.
Rows can be hidden in the same manner.
We would like to note that while hiding columns (or formatting cells with, e.g., white font on white fill,
for that matter) can keep data out of view, it is not a way of formally protecting sensitive data.

Making Better Use of Screen Space


Column headers are often longer than the area needed to display the data under them. We saw this on
the summary worksheet when we auto-adjusted columns A:H; they became far wider than necessary to
display the data. If management wants to be able to view not only the averages on the summary sheet but
also the clarifying text, the cells containing that text will need to be formatted to make better use of
screen space. We will use text wrapping and other formatting techniques to accomplish this.
Text can also be rotated for a better fit or appearance. We will rotate the headers for the questions on the
summary worksheet.
Cell C3, which helps to clarify questions (6)-(11), is long enough that it causes its column to be
considerably wider than the others. This could be remedied by merging cells C3:H3. Merging cells can
interfere with the ability to copy formulas and complete certain other operations. Instead, we will center
the text in cell C3 across the range C3:H3. Unlike a merge and center operation, this will allow Excel to
continue to treat cells D3:H3 as individual cells.

Basic Cell Formatting


The font face, font size, font color, and fill color can be set in a number of ways. One is through the
buttons in the Font group on the Home tab, in the Format Cells dialog box, another is via the menu. We
will change several formats in order to make the summary worksheet easier to read.

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Borders and patterns can also be set in the Format Cells dialog box. We will apply borders and patterns
to the range on the summary worksheet that contains the averages.
Note that borders (but not patterns) can also be applied using the buttons on the Home tab, or the menu
that appears when you right-click a selection.

Basic Number Formats


We will continue to improve the look and readability of the summary worksheet by making use of some
of the many different ways of displaying numeric values in Excel. Specifically, we want to display the
results of question (5), "To the nearest dollar, how much was your order?," as dollar values, and to
display the remaining numeric values on the worksheet with fewer decimal places than are currently
displayed.
Also use the Decrease Decimal button to decrease the number of decimals displayed for the averages for
questions (6)-(11) to two. Do not format these as currency, however.
In the Format Cells dialog box, there are other pre-programmed ways of displaying currency values and
other types of numbers.
Note that Excel does not actually perform currency conversion when you change a value from being
displayed as U.S. dollars to being displayed as Euros. If you wanted to perform currency conversions on
a worksheet, use the pre-programmed Currency Rates data connection file to insert current exchange
rates into your workbook and update them at specified intervals. You can access this feature from the
Data tab, via the Existing Connections button in the Get External Data group.
There are many other ways of displaying values (including date and time values, these being stored as
numbers). The table below presents just a few possibilities for formatting the values 123456789 and
.123456789.
Keep in mind that formats are cosmetic changes only (i.e., the dashes in the social security format shown
above are characters added by Excel when the number is "printed" to the screen they do not reside in
the cell itself).
Rather than using a cyclical calendar, Excel stores dates as values on a number line. While we might see
the date June 7, 1999, as having something in common with June 7, 2008, Excel knows the first of these as
the value 36318 and the second as 39606.
To the right are some dates and their equivalent numeric values in Excel. We can see from the first five
examples that 1/1/1900 is the beginning of the Excel epoch, and that each date is 1 greater than the day
before. As Excel understands it, Prince was born on 21343!
What this means is that values meant to be numeric in nature can be displayed as dates, and values
meant to be dates can be displayed as numbers. Expecting to see a cell display, for example, the number
13 as the output of some operation, and instead seeing 1/13/1900, can cause a good deal of confusion to
the beginning Excel user. By the same token, Excel will also be happy to format Prince's birthday,
6/7/1958, as Currency, displaying $21,343.00 as a result.
As efficiently as you can, select the dates in column B of the bakery mon-thurs worksheet. Format these as
number with two decimal places, then currency, then percent. Note that the underlying value in each cell
does not change as you move from format to format. Then apply the date format of your choice.
Le Napoleon's bakers are accustomed to looking at dates in European format, in which the day precedes
the month. Every once in a while, the pastry kitchen ends up preparing a special order for the wrong
daya costly error!
Within the formatting options for dates, the Locale setting allows us to display dates in a number of preprogrammed international formats. The screenshot below shows a subset of these.
When recording special orders, at least, the staff at Le Napoleon might want to change the locale to
French (France). This would allow the staff to enter dates in mm/dd/yyyy format but have them display
on the worksheet in dd/mm/yyyy format.
Note: If we wanted to affect the way dates are entered, not just displayed, we would need to configure
the Regional Settings in Windows.

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Finally, we can create custom date formats by choosing the Custom category and entering the date
format desired. We'll format the date 8/1/2008 so that it reads correctly.
Many other possibilities exist for custom formatting; this is a good option to keep in the back of your
mind!

Conditional Formatting
There are many instances in which we might want only certain cells to display a special format. Le
Napoleon, for example, might want to highlight averages on the summary worksheet that management
considers subpar. While we could identify and format those averages manually, conditional formatting
is easier. It is also more powerfulsince it is dynamic, we will not have to redo the format if we obtain
new data that drives some averages up and out of the range that we wanted highlighted.
On the summary worksheet, we will format the averages for questions (6)-(11) if the value in the cell is
below 3.
Now we can easily see that parking might be a good problem to address at the bakery location, whereas
at the mall location (where Le Napoleon sells goods sent over from the bakery), the variety of baked
goods appears to be an issue.
Also on the summary worksheet, we could use data bars to make it easier to compare at a glance the four
averages for question (5) "To the nearest dollar, how much was your order?"
We'll explore a few more examples of conditional formatting in the Increasing Spreadsheet
Readability_orders.xlsx workbook. This workbook contains brief details for a number of special orders
that the clerks at Le Napoleon have taken; we could use this to gauge the general size of an order,
whether it might involve ingredients or components not usually part of the pastry kitchen, and when it
needs to be delivered or available for pick-up. We can assume that adequate details for the creation of
each order are stored where the chefs can access them as needed.
First, let's format the dates for orders needed this month with a red style, and the dates for those needed
next month with a yellow style.
As usual, select all of the cells that the formatting should apply to (cells B2:B35 on the orders worksheet
in the Increasing Spreadsheet Readability_orders workbook). Then, from the Conditional Formatting
menu, select Highlight Cells Rules, then A Date Occurring...
In the menu box that appears, choose This Month, and Light Red Fill with Dark Red Text.
Repeat this process, choosing Next Month and Yellow Fill with Dark Yellow Text.
Management might want to see at a glance which order totals are above the average. Conditional
formatting has a number of preprogrammed options that compare values in individual cells to the entire
range of cells chosen for formatting.
To format all of the order totals that are above average, first select cells E2:E35. From the Conditional
Formatting menu, select Above Average (note the other options in this list before doing so!).
In the menu box that appears, choose a predefined style, or define your own custom style. We have
chosen Green Fill with Dark Green Text:
The time of day that an order is needed can determine whether kitchen staff needs to prepare part of the
order the previous day, or come in extra-early that day, or perhaps stay late that evening. We would like
to be able to see at a glance what time an order is due, without risking the kind of mistake that can occur
by misreading AM for PM or vice versa.
The preprogrammed color scales in the conditional formatting option provide an easy solution. Select
cells C2:C35. Then, from the Conditional Formatting menu, choose Color Scales, and select a color scale.
(The Blue - Yellow - Red and the Red - Yellow options both provide reasonably intuitive formatting for
the problem at hand.)
To the right is what the data should look like if you chose the Blue Yellow Red option.
Finally, let's revisit the formatting that we applied to the order totals. In addition to having all aboveaverage order totals shaded (which we have already done), let's say the kitchen wanted to see at a glance
how critical each order is in terms of revenue.

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A color scale like the one that we applied in the previous example would provide one quick solution, but
it would compete visually with the shading already present on above-average values in this range. An
icon set is a better way of keeping the existing shading and marking a new distinction.
Select cells E2:E35 and, from the Conditional Formatting menu, choose Icon Sets. The Red to Black style
fits nicely with what we are trying to accomplish heredistinguish these data values in another way
without making the result too visually confusing.
The order total data should now look like what you see on the right here.
Increasing Readability Solution
Color scales, icons, and data bars have default settings that determine what values will be given what
formats. You can change these settings, perhaps choosing a different threshold between a red and a light
red icon, or associating the short end of a data bar with a static value rather than whatever happens to be
the lowest number in the range of cells (handy if your dataset contains negative values).
These settings are configured in the New Formatting Rule or Edit Formatting Rule dialog boxes, which
you can access as you are first applying a format, or after the fact, via the Conditional Formatting menu.
If you are setting up a new rule that you want to configure more closely, choose the More Rules option
(after selecting the general rule type; e.g., Icon Sets).
If you want to go back and configure an existing rule, select the relevant range of cells, and from the
Conditional Formatting menu, choose Manage Rules.
In the dialog box that appears, select the rule to be customized and click Edit Rule. This will open the
Edit Formatting Rule dialog box, where you can make adjustments to the behavior of the rule.
Conditional formatting provides for much more powerful options than those that we have just seen.
We'll revisit the topic of conditional formatting in a later chapter.
Formatting and Other Options with Paste Special
Sometimes we format a cell or range of cells with the font colors, borders, patterns, and number formats
we want, only to find that there are other cells that need to be formatted in a similar manner. The Format
Painter, found on the Home tab, will allow us to copy all of the formats from a cell and then paint other
cells with these formats. What if we want to transfer just some formats from one cell to another,
however?
Excel has special options that you can choose from when completing a copy-paste operation. The Paste
Special dialog box (accessible via the Paste drop-down list on the Home tab) is shown below.
Setting Up a Worksheet for Printing
Now that the summary worksheet contains the formatting we want, we can set it up to display the way
we want on the printed page.
On the Page Layout tab, Page Setup contains options for selecting the paper size, orienting data,
changing margins, and so on.
Now click the Office Button, and from the list of Print options, select Print Preview. By default, Excel will
send the entire contents of a worksheet to the printer. Since cells J14 and J15 contain the name and phone
number of the group that designed Le Napoleon's questionnaire, Excel will want to print those cells.
However, to do this and still use only one pageas we requested when we configured the Page Setup
optionswill require shrinking everything to the point that our averages might become difficult to read.
Instead, let's have Excel print only those cells we want by marking a range on the worksheet for printing.
Among other things, the Sheet tab in the Page Setup dialog also allows you to control whether a
worksheet's gridlines will print, to repeat the contents of a row or column on each sheet (useful for
printing headers like our respondent's index numbers, or our question numbers on every page of a
multi-page print job), and to print Excel's column headings (A, B, C, etc.) or row labels on each page of a
multi-page print job.

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Excel Formulas
People use spreadsheets to compute quantities of interest. In any cell of a spreadsheet we are free to
enter a formula to compute a quantity of interest. For example, the management of Le Napoleon might
want to compute the following quantities:


Each employee's weekly paycheck and the total weekly payroll

The cost of producing various types of cakes

The cost of purchasing sugar, butter, and flour from each supplier as well as the total amount we
owe each supplier

The annual profit from the sale of Sacher Tortes, using various price and unit cost scenarios.

In this unit we will use Excel formulas to efficiently and easily compute these quantities of interest, We
will see that in order to efficiently use formulas we must have an understanding of the spreadsheet Copy
command. Our work in this unit will use the file Excel Formulas.xlsx, so please download this workbook
now.
In this chapter we will discuss following features

Copying Formulas

Auto complete formula option

Entering formulas by pointing

Absolute Addressing

Using the F4 key

Hierarchy of mathematical operations

Summation Icon

Editing or correcting Formulas

Showing the Actual Formula in a Cell

Do it yourself

Copying Formulas

COMPUTING THE WEEKLY PAYROLL BY COPING FORMULAS

Work book:

Excel Formulas

Work Sheet; wages

In worksheet Wages of the file Excel Formulas.xlsx we compute the weekly wage for our 8 employees
(their names are in cells B4:B11). For each employee we are given (in cells C4:C11) the hours each
employee worked this week, and in cells D4:D11 we are given each employee's hourly wage.

CAPTION
For example, Tricia Lopez worked 49 hours and is paid $10 per hour. We know that for this week Tricia
will be paid 49*10 =$490. To compute Tricia's weekly salary in cell E4 we simply move the cursor to cell
E4 and type =C4*D4 and hit enter. We then see Tricia's weekly salary (490) show up in cell E4. All Excel
formulas must begin with an equals (=) sign. The * is the mathematical symbol for multiplication.
Now we could compute Will Wong's salary in E5 with the formula =C5*D5 and continue onward and
enter a formula to compute each employee's salary. Of course, if we have hundreds or thousands of
employees, this would be really tedious. Fortunately, Excel's ability to let us "copy" formulas eliminates
this problem. What we really want to do in each of cells E4:E11 is to multiply the two numbers to the left
of column E in the same row.
To accomplish this goal we simply "copy" our formula in E4 to the cell range E5:E11. Then in cells E5:E11
our copied formula will try to do in cells E5:E11 exactly what it did in cell E4 (multiply the numbers in

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the same row in columns C and D). Basically, when you copy a formula that has no $ signs attached to
cell addresses (more on $ signs later, but do not worry about them now!), then if you copy a formula
down a row the row numbering the formula is increased by 1, and if you copy a formula across and to
the right one row the column number is increased by 1.

CAPTION
To copy our formula from cell E4 to E5:E11 simply move the cursor to the lower right-hand corner of cell
E4. You will see a little "cross." Now drag the cross (while holding down the left mouse button) to cell
E11. You will now see that each employee's weekly salary has been calculated. To copy the formula
without affecting the existing formats, click the Auto Fill Options button and choose Fill Without
Formatting. Move the cursor to cell E6, for example, and you will see the formula =C6*D6 is in cell E6.
Copying our formula allows us to easily "do the same thing" multiple times in our spreadsheet.

THE AUTOCOMPLETE FORMULA OPTION

Try to use the Autocomplete feature to compute the average amount paid this week to our employees.
Hint: AVERAGE is the Excel function for computing an average.

CAPTION
In cell E12 we computed our total weekly payroll by entering the formula =SUM(E4:E11) in cell E12.
Note that as we type =SU we see a list of Excel functions show up. If we double click on the SUM
function or move to the SUM function and hit the tab key, then Excel enters the letter M and the ( needed
for our formula. This neat time saver is called the Autocomplete option.

ENTERING FORMULAS BY POINTING

If we type in a complex formula, then we can easily type in the incorrect cell reference. Most users of
Excel prefer to enter formulas by "pointing" to the cells referenced in the formula.
Use pointing to reenter the formula used to compute our total weekly payroll.

CAPTION
To illustrate how pointing works, let's use pointing to reenter our formula in cell E4 that computes Tricia
Lopez's weekly salary. Move your cursor to cell E4 and type = but now simply click on cell C4. Then type
an * and then move to cell D4. Hit enter and you are done.

OTHER WAYS TO COPY FORMULAS#

CAPTION
We now show how to copy a formula without using the mouse. Let's again copy the formula for Tricia's
salary from E4 to E5:E11 to compute each employee's weekly salary. Simply move the cursor to cell E4
and select Control+C. You will see dotted lines around cell E4 (we call those moving ants). Next select
the range where you want the formula copied (E5:E11). Select Control+V and each person's weekly
salary will be computed. To copy the formula without affecting the existing formats, click the Auto Fill
Options button and choose Match Destination Formatting.
Perhaps the easiest way to copy a formula is by using the "Double Click" method. Simply move the
cursor to cell E4 and get the cross in the lower right-hand corner. Now double-click the left mouse button
and our formula in cell E4 will copy down to match the number of rows in the column immediately to
the left (column D). When copying a formula down a large number of rows, this is the slickest, most
efficient method.
We have shown how to copy a formula by dragging the formula down a column. You may also copy a
formula by dragging it across a row.

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COPYING A FORMULA DOWN SEVERAL ROWS AND SEVERAL COLUMNS


In the sheet Suppliers of the workbook Excel Formulas.xlsx we are given the per pound cost of
purchasing Sugar, butter and flour from our 6 suppliers. We are also given the pounds of each
commodity purchased from each supplier.
In the cell range J9:L14 we want to compute the cost of ordering each commodity from each supplier.

CAPTION
We begin by computing the cost of the sugar purchased from supplier 1 by entering in cell J9 the formula
=E5*E14. If we copy this formula to the range J9:L14 we will have computed the cost of buying each
commodity from each supplier. To copy our formula from J9 to J9:L14, move the cursor to J9 and select
Control + C. You will see moving ants in cell J9 indicating that we can copy this formula. Now use the
mouse or keyboard to select the cell range J9:L14 and select Control+V. Our formula is now copied and
we have computed the cost of buying each commodity from each supplier.

ABSOLUTE ADDRESSING

COMPUTING COST PER CAKE


Let's suppose that our Praline torte, Sacher torte, and Opera torte must each have the same diameter and
height (which we enter in cells D10 and D11). Also assume that the cost per cubic inch for the Praline
torte is $0.10, for the Sacher torte $0.11, and for the Opera torte $0.12. Let's create a spreadsheet (see sheet
Cakecost of file Excel_Formulas.xlsx) that computes the cost of producing each type of cake. The volume
of a cake with radius r and height h is r2h. Here r = cake radius in inches and h = cake height in inches.
Recall that radius = diameter/2.
We want to enter a formula in E15 to compute the cost of producing the Sacher torte. Then we hope to
copy this formula down to the range E16:E17 and thereby compute the cost of producing the other cakes.
Clearly our cost formula in cell E15 will need to depend on the diameter and height which are given in
cells D10 and D11. The problem is that if we reference D10 and D11 in our formula in cell E15 and copy
the formula down, then D10 will change in cell E16 to D11 and D11 will change in cell E16 to a D12
reference. We do not want this to happen! The solution is to enter cell D10 in our formula as $D$10 and
enter cell D11 in our formula as $D$11. A $ sign before the row of a cell reference ensures that when we
copy the formula the row reference remains unchanged. Similarly, a $ sign before the number in a cell
reference ensures that when we copy the formula the column reference remains unchanged.

CAPTION
To compute the cost of the Praline Torte in cell E15 we enter the following formula in
cell E15.

USING THE F4 KEY

TO ENTER $ SIGN IN A CELL ADDRESS


Suppose we had not put $ signs on the D10 and D11 cell references in E15. Then when we copied the
formula to cell E16, would contain the following formula: =PI()*(D11/2)^2*D12*D16.
This would certainly give an incorrect answer.

CAPTION
As we enter the formula into E15 we note that PI() equals the constant =3.1416. Note that as we type in
PI we used Auto complete to complete the function PI(). The portion of the formula ($D$10/2)^2
computes the radius (diameter/2) and squares it. The ^ symbol (located on top of the number 6 on the
keyboard) indicates that what is in () is raised to the power after the ^. The / indicates division. Notice
that we did not type in the $ signs. We hit F4 to put in the $ signs. Repeatedly hitting the F4 key cycles
through $D$10, D$10, $D10, D10. After hitting the enter key we copy the formula in E15 to E16:E17. This

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14

will compute the cost of the other tortes. First obtain the cross in the lower right-hand corner of cell E15.
Then we dragged the cross down to E17. We have now computed the cost of each torte!

Hierarchy of Mathematical Operations

The astute student is probably wondering why we used parentheses in our cell E15 formula, instead of
typing the formula as: =PI()*($D$10/2)^2*$D$11*D15.
Operation(s) contained in parentheses are carried out first followed by operations involving exponents.
Then division or multiplication operations are given equal precedence. Operations involving
multiplication and division are given equal precedence and are then carried out from left to right.
Finally, operations involving addition and subtraction are given equal precedence and are then carried
out from left to right.
Without the parentheses, Excel would square 2 (obtaining 4) and then compute $D$10/4 which equals 2.
We want, of course, the part of our formula involving D10/2 to yield 16 and not 2. Inserting ( ) around
$D$10/2 ensures that we first divide the contents of cell D10 by 2 and then square the result (this yields
42/2 = 8, as desired).

Summation Icon

SUMMING A RANGE OF CELLS WITH A SUMMATION ICON


Now let's efficiently compute our total bill for each commodity and the total amount we need to pay
each supplier. To determine the total amount we owe each supplier we could simply copy from H23 to
H24:H27 the formula =SUM(E23:G23). Then we could compute the total bill for each commodity by
copying the formula =SUM(E23:E28) from cell E29 to the range F29:G29. There is nothing wrong with
this method but here's an easier way.

CAPTION
The Summation icon allows us to quickly sum the contents of a cell range. The Summation icon is located
in the Editing section of the Home tab on the ribbon.
We want to create summation formulas in the range H23:H28 and E29:H29. Select the range H23:H28
and hold down the control key. Now select the range E29:H29. Next click on the summation icon and
you have computed the total owed by each supplier and the total cost of each commodity. Note that
holding down the control key enables us to select a noncontiguous range of cells.

Editing or Correcting Formulas

CAPTION
If you want to edit or correct a formula simply move your cursor to the cell and select the F2 key or
double-click on the cell. You are now free to edit or change the desired formula. Simply hit enter when
you are done changing the formula.

Showing the Actual Formula in a Cell

CAPTION
Sometimes we want our cells to display the cell formula, rather than the value computed by the cell
formula.
First select the Office button, followed by Excel Options, Advanced, and under Display Options
Available for this worksheet check "Show formulas in cells instead of their calculated results". Your
formulas will now show in all worksheet cells. Unchecking the box causes the results of the formulas to
be shown.
Another way to show or hide formulas is Ctrl + the ~ on the keyboard. This functions as a toggle switch
turning the display of formulas on and off.

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Do It Yourself Exercise

Suppose our annual demand for Sacher Torte equals 7000 minus 160 times (price of Sacher Torte).
Producing Sacher Tortes incurs an annual fixed cost of $5000. Construct a table which shows how our
annual profit from Sacher Tortes varies as the cost of producing a Sacher Torte varies from $17.00 to
$24.00 and the price of a Sacher Torte varies between $25 and $35.

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16