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
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Introduction to the framework

The referencing framework ensures that you can use the contents of any cell simply by including its cell reference in a formula. The following screenshot is the simplest example of this. By typing =D4 in cell F5, the contents of cell D4, Happy day, have been duplicated in cell F5:

You can enter a formula in Excel by typing the values for each part of the formula directly into the cell, as shown in the following screenshot:

Cost of Sales is Units Sold × Unit Cost, which in this case is 30 × 65,000. The formula bar shows that we entered =30*65000 to get 1,950,000.

The two major shortcomings of this method are as follows:

• It isn't clear where the figures have come from. Several months down the line, when you come to review your model, you don't want to have to think through the whole process again in order to determine the source...