Excel best practices while preparing financial models | List of important MS-Excel shortcuts

 Excel best practices while preparing financial models | List of important MS-Excel shortcuts

As a Financial Analyst, your key goal, while building a financial model, is to improve its transparency and audibility.

Below are some of the Excel best practices while preparing financial models and list of important MS-Excel shortcuts

1. Color Coding: There are no hard and fast rules in assigning color codes to various inputs, however the below mentioned guidelines are mostly followed across the industry.

Types of cell

Excel formula

Color

Hardcoded Numbers

=1234

Blue

Formulae / Calculation

=H3*H2

Black

Links to other sheets

=Sheet2!D9

Green

Different formula

=H8/2

Red

 

2. Sign convention: There are two approaches

a. All income should be positive and all expense should be negative (Preferred)

b. All income and expenses should be positive while the formula will include negative sign

Line Item

Option 1

Option 2

Revenue

300

300

COGS

200

(200)

Gross profit

100

100

 

3. Write simple formulae: A good financial model is the one which does not contain complicated formulae, and not the other way around! A complicated formula should be broken down into multiple cells.  

a. Always remember to keep the formula constant in the entire row for all the years

b. Most formulae in a financial model will refer to i) a value which corresponds to a period (for example, 2019) and ii) a metric (sales)

Example: =$M$9/N$3


4. Avoid constants in the formula: Do not include hard coded numbers i.e. constants into a cell reference. You'll likely forget there is an assumption inside a formula

Example: N45 * 0.23


5. Never hide row or columns, instead the best practice is to use group function (Shortcut key: Alt + D + G + G), Ungroup function (Shortcut key: Alt + D + G + U)

When we group them then that particular row or column is not shown while viewing or printing the model and it also helps us while updating the model


6. Never use merge cells function instead we can use “Centre across selection” under “format cells -alignment”. As when we merge cells there are a lot of restrictions like we cannot drag formulas or we cannot insert sort and filter function which is one of the important function in financial models.


7. Macros for the most widely used functions while building a financial model. Make sure you set the desired macros before and while preparing the model

a. Currency ($, INR etc.)

b. Decimal points (no decimal, one decimal etc.)

c. Multiples (P/E of 8.9x, P/B of 1.20x)

d. Color coding (input cells, calculation cells, linked to a different sheet, warning cells etc.)

e. Separator rows and columns

 

8. Always try to connect cells if possible: For example, current year’s opening balance should be connected to the closing balance of previous year

 

9. Never use long names for worksheet instead use shortest sign possible like using “IS” for Income statement, BS for balance sheet, CF for cash flow, COGS, Revs for revenue, etc. 

 

10. Last but not the least, Excel Shortcuts: While its extremely important to be fast and efficient at the same time while preparing models and hence excel shortcut comes into picture. Some important functions are given below

Shortcut Key

Function

F2

Edit cell

F4

Repeat last action

Ctrl + Z

Undo last action

F9

Recalculate workbook

Alt + W + F + F

Freeze panes function applies to the selected cell

SELECTION

 

Ctrl + Arrow key

Jump to edge of content

Ctrl + spacebar

Select column

Shift + spacebar

Select row

Alt + I + R

Insert row

Alt + I + C

Insert column

Alt + E + D

Delete row / column

F5

Go to

Shift + F11

Insert worksheet

Ctrl + Page up / page down

Move to next / previous worksheet tab

Alt + E + L + M

Delete worksheet

Alt + O + H + R

Rename worksheet

FORMATTING

 

Ctrl + B

Bold

Ctrl + I

Italics

Ctrl + U

Underline

Ctrl + D

Copy formula down to fill section

Ctrl + R

Copy formula right to fill section

Alt + E + S

Paste special

Ctrl + L

Open formatting dialogue

Ctrl + shift + 7

Outline cell

Ctrl + shift + -

Remove cell border

Alt + O + C + A

Autoformat column width

Alt + O + R + A

Autoformat row height

Alt + D + E

Text to column

Alt + D + F + F

Filter data

Alt + D + S

Sort data

Alt + O + D

Conditional formatting

Ctrl + Shift + $

Apply currency format to the selected cells

CELL NAVIGATION

 

Ctrl + Arrow keys

Shows the end of range

Shift + Arrow keys

Select a specific range

Shift + Ctrl + Arrow keys

Highlight the entire range of data

Home

Move to beginning of line

Ctrl + Home

Move to cell “A1”

Shift + Enter

Move to cell above

Tab

Move to cell to the right

Shift + Tab

Move to cell to the left

Backspace

Delete cell and start writing

Ctrl + ~

Show formulas/Values

 

If you are not aware than this post is a part of the Financial Modeling Series. To check the previous post on the Basics of Financial Modeling, Click here. Also, the list will keep updating so kindly drop your email id in the comment section below to be notified as and when the new addition is made to the series.

Below is the snapshot of the three financial statements:


Three Financial statements (Financial Modeling Process)

1. Income statement:

Revenue

- Cost of goods sold (also known as direct cost)

= Gross Profit

- Operating expense (also known as indirect or office expense)

= Net operating income (EBIT)

- Non-operating expense and interest expense

= Pre-tax income (EBT)

- Income tax

= Net income (PAT)

* One important term EBITDA i.e. nothing but we add back non-cash expenses to EBIT. EBITDA is used to understand the actual cash profitability of the business.

 

2. Balance sheet: Total assets + (total liabilities + equity)

    * Total assets= Non-current assets + current asset

    * Total liabilities + equity = Non-current liabilities + current liabilities + equity

 

3. Cash flow statement: Cash flow from operating activities + cash flow from investing activities + cash flow from financing activities = Net change in cash i.e. Cash balance, we find on balance sheet)

 

This was all about Excel best practices one should keep note of while preparing financial models and snapshot of three financial statements. Keep checking out our latest post for the next part of the financial modeling series which will be out any soon.

Thanks for reading

The Finance Magic

 

Financial Modeling series:

1. What is financial modeling - It’s scope, uses, types, and how to build a financial model? | Explained

2. Excel best practices while preparing financial models | List of important MS-Excel shortcuts {This Post} 

3. Things to understand before buildingthe financial model {NEW} 


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