Book Image

Hands-On Financial Modeling with Microsoft Excel 2019

By : Shmuel Oluwa
Book Image

Hands-On Financial Modeling with Microsoft Excel 2019

By: Shmuel Oluwa

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.
Table of Contents (15 chapters)
Free Chapter
1
Section 1: Financial Modeling - Overview
4
Section 2: The Use of Excel - Features and Functions for Financial Modeling
7
Section 3: Building an Integrated Financial Model

Understanding the limitations of ratio analysis

It is important to realize that ratios do not actually solve any problems; they merely highlight trends and exceptions that can then be acted upon. Definitions of ratios often vary from one analyst to another—for example, the quick ratio and the acid test. Some analysts refer to the ratio of current assets minus inventory divided by current liabilities as the quick ratio, while others refer to the same ratio as the acid test.

One school of thought uses the year-end balances for assets in ROA and equity and long-term debt in ROACE. Another school of thought recognizes that companies can manipulate this ratio by posting significant transactions at the year end, only to reverse them in the new year. They therefore use the average of those balances that will counter such practices. These differences in approach can lead to vastly...