Stock Investing Skills

Using Microsoft Excel For Financial Analysis




?? Step 1: Setting Up Your Data

  1. Organize Raw Data
  2. Create separate sheets for:
    • Balance Sheet
    • Income Statement
    • Cash Flow Statement

  3. Label your rows and columns clearly (e.g., Revenue, COGS, Net Income).

  4. Standardize Formats

  5. Use proper number formatting:
    • Currency: $ format for financial values.
    • Percentage: % for ratios.
  6. Remove unnecessary decimal points for clarity.

? Step 2: Common Financial Analysis Tools in Excel

1. Financial Ratios

Use Excel formulas to automate ratio calculations: - Liquidity Ratios
- Current Ratio: =B2/B3 (where B2 = Current Assets, B3 = Current Liabilities). - Quick Ratio: =(B2-B4)/B3 (subtract inventory from current assets).
- Profitability Ratios
- Net Profit Margin: =B5/B6 (Net Income ÷ Revenue).
- ROE: =B5/B7 (Net Income ÷ Equity).
- Debt Ratios
- Debt-to-Equity: =B8/B7 (Total Debt ÷ Total Equity).

Tip: Use named ranges for better clarity (e.g., name cell B2 as Current_Assets and write =Current_Assets/Current_Liabilities).

2. Trend Analysis

  • Use line charts to visualize trends:
  • Select your data (e.g., Revenue over 5 years).
  • Go to Insert > Line Chart for visual comparisons.

Example:
| Year | Revenue | Net Income |
|------|----------|------------|
| 2020 | 50,000 | 8,000 |
| 2021 | 55,000 | 9,000 |

Select this range, insert a line chart, and compare Revenue vs. Net Income trends.

3. Break-even Analysis

Set up the formula for break-even sales: - Inputs Needed:
- Fixed Costs (A2), Variable Cost per Unit (A3), Selling Price (A4).
- Formula:
- Break-even Sales = =A2/(A4-A3).
- Use a Data Table for "What-If" analysis: - Go to Data > What-If Analysis > Data Table to test different prices or costs.

4. Forecasting

  • Use FORECAST.LINEAR or TREND to project future performance:
  • Example: Predict revenue growth for the next 5 years based on historical data.
  • Formula: =FORECAST.LINEAR(Year, Revenue, YearRange).

? Step 3: Visualizing Data

  1. Create Dashboards
  2. Use PivotTables for quick summaries:
    • Go to Insert > PivotTable, drag fields (e.g., Revenue, Expenses) into rows/columns.
  3. Insert Slicers to filter data dynamically.

  4. Add charts (bar, pie, or line) to visualize the key metrics.

  5. Use Conditional Formatting

  6. Highlight cells based on performance:
    • Select data, go to Home > Conditional Formatting > Data Bars/Color Scales.

  7. Example: Highlight negative net income with red formatting.

  8. Interactive Dropdowns

  9. Use Data Validation to add dropdown menus (e.g., select scenarios).

? Step 4: Advanced Analysis with Excel Functions

  1. NPV and IRR (Investment Analysis)
  2. NPV (Net Present Value):
    • =NPV(DiscountRate, CashFlows)
    • Example: =NPV(0.1, B2:B6) where cash flows are in B2:B6.

  3. IRR (Internal Rate of Return):

    • =IRR(CashFlows)

  4. Sensitivity Analysis (Data Tables)

  5. Example: Analyze profit based on price and cost changes.

    • Create a table of possible scenarios.
    • Use What-If Analysis > Data Table to fill outputs automatically.

  6. Scenario Manager

  7. Go to Data > What-If Analysis > Scenario Manager.
  8. Add different scenarios (e.g., Optimistic, Pessimistic) and compare results.

? Step 5: Saving and Sharing

  1. Save Templates

  2. After building your model, save it as a template:

    • File > Save As > Excel Template (.xltx).

  3. Use Excel Add-ins

  4. Power Query: Automates data import and cleaning.

  5. Solver: Optimizes calculations (e.g., maximizing profit or minimizing cost).

  6. Collaborate and Protect

  7. Share via OneDrive or SharePoint for teamwork.
  8. Protect sensitive data with Password Protection:
    • File > Info > Protect Workbook.

? Example Ready-Made Excel Templates

  1. Small Business Financial Model (includes P&L, Cash Flow, Ratios): Download Here.
  2. Personal Budget Tracker: Simple monthly budget with charts.
  3. Investment Portfolio Tracker: Tracks portfolio value, ROI, and allocations.
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