# Excel best practices while preparing financial models | List of important MS-Excel shortcuts ~ The Finance Magic – Stock Market | Personal Finance

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
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

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

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.

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

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We're dedicated to providing you vast investment knowledge, with an emphasis on making you understand the "WHY" in finance.