#### Overview of this book

Financial modeling is a core skill required by anyone who wants to build a career in finance. Hands-On Financial Modeling with Microsoft Excel 2019 explores terminologies of financial modeling with the help of Excel. This book will provides you with an overview of the steps you should follow to build an integrated financial model. You will explore the design principles, functions, and techniques of building models in a practical manner. Starting with the key concepts of Excel, such as formulas and functions, you will learn about referencing frameworks and other advanced components for building financial models. Later chapters will help you understand your financial projects, build assumptions, and analyze historical data to develop data-driven models and functional growth drivers. The book takes an intuitive approach to model testing and covers best practices and practical use cases. By the end of this book, you will have examined the data from various use cases, and have the skills you need to build financial models to extract the information required to make informed business decisions.
Preface
Free Chapter
Section 1: Financial Modeling - Overview
Introduction to Financial Modeling and Excel
Steps for Building a Financial Model
Section 2: The Use of Excel - Features and Functions for Financial Modeling
Formulas and Functions - Completing Modeling Tasks with a Single Formula
Applying the Referencing Framework in Excel
Section 3: Building an Integrated Financial Model
Understanding Project and Building Assumptions
Asset and Debt Schedules
Cash Flow Statement
Valuation
Model Testing for Reasonableness and Accuracy
Another Book You May Enjoy

# Learning about the various kinds of ratios

There are thousands of ratios, and you could easily get carried away with them. To make life easier for us, ratios can be classified under five broad categories—namely, profitability, liquidity, efficiency, debt management, and market ratios.

We will examine a few examples for each of these categories.

These ratios measure how capable a company is of converting turnover into profit. These ratios are usually referred to as the margin, which generally means that they are divided by turnover. Let's look at the gross profit margin, which is expressed as the following formula:

Here, the gross profit is the turnover less the cost of sales.

Sometimes, when a company makes a loss, you can still take some comfort if there is a gross profit. This means that the direct costs have been covered and there is some contribution towards...