Microsoft Excel is widely regarded as a pivotal tool in the world of finance for a multitude of reasons:
I built my entire career in finance with Excel and Google Sheet spreadsheets. Check out all the financial model templates I've ever built here. There is so much to master and the only limit is your creativity. This software is very good at demonstrating logic, complex financial concepts, and helping to run a range of feasibility studies for literally any business.
Versatility and Universality: Excel is a versatile tool that can handle a wide range of financial tasks, from simple calculations to complex financial modeling. It is also universally recognized and used in the finance industry, making file sharing and collaboration relatively easy.
Cell-Based Structure: Excel's grid of rows and columns is ideal for financial data organization, making it easy to input, track, and analyze numbers. Assigning time-frames (day/week/month/year) to each column or row powers this.
Formulas and Functions: Excel offers a vast library of built-in formulas and functions tailored for financial analysis. Functions like PV (present value), NPV (net present value), IRR (internal rate of return), and PMT (payment amount for a loan) are invaluable for financial analysts. To me, the most used formulas for completing finance work are SUMIFS, INDEX/MATCH, VLOOKUP, SUMPRODUCT (for weighted averages), IF and IF/AND statements, and MIN/MAX. That is all you need in order to build an infinite number of useful forecasting frameworks. I typically don't use named ranges or see a huge use for them, but sometimes that can be useful for your own custom builds that only you use.
Customizability: Users can create custom formulas and macros using Visual Basic for Applications (VBA). This allows for automation of repetitive tasks and the creation of bespoke financial models.
Data Analysis Tools: Excel provides various tools for data analysis, such as PivotTables, which allow users to summarize large datasets, and tools for forecasting and regression analysis.
Data Visualization: With Excel, financial professionals can create a variety of charts and graphs, like line charts, bar graphs, and pie charts, to visually represent financial data, trends, and projections.
Scenario Analysis: Excel's "What-If" analysis tools, such as Goal Seek and Data Tables, allow users to forecast outcomes based on different scenarios or inputs. The ability to create data tables based on an adjustment of up to two variables in order to see how a final output changes can be beneficial in order to see results side-by-side without having to run various scenarios and copy/pasting the results.
Integration with Other Software: Excel can integrate with other software and databases, making it easier to import/export data for financial analysis.
Budgeting and Reporting: Excel's structure and functions make it an ideal tool for creating budgets, forecasts, and financial reports.
Data Validation and Conditional Formatting: These features help in ensuring data integrity by limiting data entry errors and highlighting specific data points based on user-defined criteria.
Financial Templates: Excel offers a range of pre-built templates for various financial tasks, like loan calculations, portfolio management, and budgeting.
Collaboration: With the integration of Excel in Microsoft's cloud ecosystem, multiple users can collaborate on a single document in real-time, ensuring seamless teamwork on financial projects.
In summary, the combination of Excel's versatility, comprehensive set of tools, and widespread adoption in the finance industry makes it an invaluable software for financial professionals.
If you want a jump start into finance, here is a bundle of all the finance templates I've got. Sometimes the best way to learn financial modeling is to dive deep into other complete models for various industries.
Article found in Accounting and Finance.
