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Financial Analysis in Excel
IENG490
Arman Nedjati
Mahmoud Golabi
Objectives
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• Work with financial functions to analyze loans
and investments
• Create an amortization schedule
• Calculate a conditional sum
• Interpolate and extrapolate a series of values
• Calculate a depreciation schedule
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Objectives
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Determine a payback period
Calculate a net present value
Calculate an internal rate of return
Trace a formula error to its source
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Working with Loans and Investments
• To calculate the present value of a loan or investment, use the
PV function
• To calculate the future value of a loan or an investment, use
the FV function
• To calculate the size of the monthly or quarterly payments
required to pay off a loan or meet an investment goal, use the
PMT function
• To calculate the number of monthly or quarterly payments
required to pay off a loan or meet an investment goal, use the
NPER function
• To calculate the interest of a loan or investment, use the RATE
function
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Working with Loans and Investments
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=PMT(rate, nper, pv, [fv=0] [type=0])
=FV(rate, nper, pmt, [pv=0] [type=0])
=NPER(rate, pmt, pv, [fv=0] [type=0])
=PV(rate, nper, pmt, [fv=0] [type=0])
=RATE(nper, pmt, pv, [fv=0] [type=0])
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Calculating a Loan Payment
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• The functions to work with loans are the same
ones you used to work with investments
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Creating an Amortization Schedule
• To calculate the amount of interest due in a
specified payment period from a loan, use the
IPMT function
• To calculate the amount of a loan payment
used to pay off the principal of the loan, use
the PPMT function
• =IPMT(rate, per, nper, pv, [fv=0] [,type=0])
• =PPMT(rate, per, nper, pv, [fv=0] [,type=0])
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Creating an Amortization Schedule
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Calculating Yearly Interest and
Principal Payments
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• One way of calculating totals from several
payment periods is to use the Analysis ToolPak add-in
• =CUMIPMT(rate, nper, pv, start, end, type)
• =CUMPRINC(rate, nper, pv, start, end, type)
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The Excel CUMPRINC function calculates the cumulative payment on the principal
of a loan or investment, between two specified periods.
The Excel CUMIPMT function calculates the cumulative interest paid on a loan or
investment, between two specified periods.
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Calculating Yearly Interest and
Principal Payments
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Projecting Future Income and
Expenses
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• An income statement, also known as a profit and
loss statement, shows how much money a business
makes or loses over a specified period of time
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Interpolating a Series of Values
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• Select the range with the first cell containing the
starting value, blank cells for middle values, and
the last cell containing the ending value
• In the Editing group on the Home tab, click the
Fill button, and then click Series
• Specify whether the series is organized in rows or
columns and the type of series to interpolate.
Check the Trend check box
• Click the OK button to insert the interpolated
series into the middle cells
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Extrapolating a Series of Values
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• Select a range with the first cell containing the starting
value followed by blank cells to store the extrapolated
values
• In the Editing group on the Home tab, click the Fill
button, and then click Series
• Select whether the series is organized in rows or
columns. Select the type of series to extrapolate into the
blank cells. Enter the step value in the Step value box
• Click the OK button to insert the extrapolated series into
the blank cells
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Extrapolating a Series of Values
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Calculating Depreciation
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• To calculate a straight-line depreciation, use the SLN
function
• To calculate a balance depreciation, use the DB
function
• To calculate a sum-of-years’ digit depreciation, use
the SYD function
• To calculate a double-declining balance depreciation,
use the DDB function
• To calculate a variable depreciation, use the VBD
function
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Calculating Depreciation
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Calculating Depreciation
New Perspectives on Microsoft Office
Excel 2007
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Working with Payback Period
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• One simple measure of the return from an
investment is the payback period, which is the
length of time required for an investment to recover
its initial cost
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Calculating Present Value
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• The time value of money is based on the assumption
that money received today is worth more than the
same amount received later
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Calculating Net Present Value
New Perspectives on Microsoft Office
Excel 2007
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Determining the Return from an
Investment
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• To calculate the net present value when the initial investment is made
immediately, use the NPV function with the discount rate and the series of
cash returns from the investment. Subtract the cost of the initial
investment from the value returned by the NPV function
• To calculate the net present value when the initial investment is made at
the end of the first payment period, use the NPV function with the
discount rate and the series of cash returns from the investment. Include
the initial cost of the investment as the first value in the series
• To calculate the internal rate of return, use the IRR function with the cost
of the initial investment as the first cash flow value in the series. For
investments in which there are several positive and negative cash flow
values, include a guess to aid Excel in arriving at a reasonable internal rate
of return value
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Using the NPV Function
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• =NPV(rate, value1 [value2, value3, ...])
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Using the NPV Function
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Calculating the Internal Rate of Return
• The point at which the net present value of an
investment equals 0 is the internal rate of return
(IRR)
• =IRR(values, [guess=0.1])
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Calculating the Internal Rate of Return
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Exploring other Financial Functions
• For cash flows that appear at unevenly spaced
intervals, you use the XNPV and XIRR
functions
– =XNPV(rate, values, dates)
– =XIRR(values, dates, [guess = 0.1])
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Tracing Error Values
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• Select the cell containing an error value
• In the Formula Auditing group on the Formulas tab, click the
Error Checking button arrow and then click Trace Error
• Follow the tracer arrows to a precedent cell containing an
error value
• If the tracer arrow is connected to a worksheet icon, doubleclick the tracer arrow and open the cell references in the
worksheet
• Continue to trace the error value to succeeding precedent
cells. When you locate a cell containing an error value that has
no precedent cells with errors, you have located the source of
the error
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Tracing Error Values
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• Finish
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