Are you a financial analyst? If yes, then Microsoft Excel will be your best friend. Excel is one of the analyst's most preferred financial modeling tools as it offers several functions that help analysts create a model and do analysis. These functions always make the task easier and help in completing the tasks at a better speed. Are you aware of those functions? If you haven't heard of them, don't worry, as we will list a few financial modeling functions in Excel that help every financial analyst.
SUMPRODUCT
One of the best functions in the analysis business as it quickly multiplies two ranges together. The function helps in adding the product of each corresponding value present between two ranges, hence the name SUMPRODUCT.
But, SUMPRODUCT sums up all the multiplied values together, and to get the sum of particular values, you can add criteria within the function. So, by adding this, you can calculate a particular product family.
PMT
An amazing function that allows financial analysts to calculate the standard payments like the principal and interest amounts. The PPMT and IPMT functions allow you to have the calculation of any particular payment number as well. But, to get the exact calculations on your screen, you should be careful while entering the loan data like terms and interest rates in the PMT. Once the data is correct, the PMT function will give you the exact details you are looking for.
NPV
The NPV function has a great role in determining the present status of a series of cash flows. The function uses the discount rate to get the present value. Another function PV has the same role but determines the future cash flow each period. So, if you want to determine the value of an investment, then create the future cash flow model first. The future cash flow model will help determine the present value of an investment using the NPV function.
IRR
IRR function isn't the most preferred financial function over NPV, but it has a great role in determining the internal rate of return of a series of cash flows. The IRR is known as the compounding return of any investment in finance. The function helps in comparing the investment returns to a benchmark or hurdle rate relatively. Hence, the IRR still has an important role as a financial modeling function in Excel.
IF
Suppose it is a simple function in excel that works on if-then logic but is still widely used by financial analysts. The IF function gives the If-Then logic of return values based on chosen criteria. To get a better output using the IF function, cluster IF functions over the other to multiple layers of if-then logic.
CONCLUSION
Whether a beginner or a professional financial analyst, the excel functions will help them a lot. Most of these functions are designed to make complex tasks easier and reduce the calculations to a large extent. Hence, the excel functions have great use in financial modeling and make the financial analysis more precise.
