Financial Modeling Tutorials

- Financial Modeling Basics
- What is Financial Modeling?
- Financial Modeling in Excel
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- Excel Modeling
- Financial Functions in Excel
- Sensitivity Analysis in Excel
- Time Value of Money
- Future Value Formula
- Present Value Factor
- Perpetuity Formula
- Annuity vs Perpetuity
- Annuity vs Lump Sum
- Internal Rate of Return (IRR)
- NPV vs XNPV
- NPV vs IRR
- NPV Formula
- PV vs NPV
- IRR vs ROI
- Break Even Point
- Payback Period & Discounted Payback Period
- Payback period Formula
- Discounted Payback Period Formula
- Profitability Index
- Cash Burn Rate
- Simple Interest
- Simple Interest vs Compound Interest
- Simple Interest Formula
- Effective Interest Rate
- Loan Amortization Schedule
- Rule of 72
- Geometric Mean Return
- Real Rate of Return Formula
- Continuous compounding Formula
- Weighted average Formula
- Holding Period Return Formula
- Cost Benefit Analysis
- Cost Volume Profit Analysis
- Opportunity Cost Formula
- Mortgage APR vs Interest Rate

**Top 15 Financial Functions in Excel –** Microsoft Excel is the most important tool of Investment Bankers and Financial Analysts. They spent more than 70% of the time on preparing Excel Models, formulating Assumptions, Valuations, Calculations, Graphs etc. It is safe to assume that Investment bankers are masters in excel shortcuts and formulas. Though there are more than 50+ Financial Functions in Excel, here is the list of Top 15 financial functions in excel that are most frequently used in practical situations.

Without much ado, let’s have a look at all the financial functions one by one –

- #1 – Future Value (FV)
- #2 – FVSCHEDULE
- #3 – Present Value (PV)
- #4 – Net Present Value (NPV)
- #5 – XNPV
- #6 – PMT
- #7 – PPMT
- #8 – Internal Rate of Return (IRR)
- #9 – Modified Internal Rate of Return (MIRR)
- #10 – XIRR
- #11 – NPER
- #12 – RATE
- #13 – EFFECT
- #14 – NOMINAL
- #15 – SLN

**Recommended Courses**

**#1 – Future Value (FV) : Financial Function in Excel **

If you want to find out the future value of a particular investment which has a constant interest rate and periodic payment, use the following formula –

**FV (Rate, Nper, [Pmt], PV, [Type])**

- Rate = It is the interest rate/period
- Nper = Number of periods
- [Pmt] = Payment/period
- PV = Present Value
- [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

**FV Example**

A has invested US $100 in 2016. The payment has been made yearly. The interest rate is 10% p.a. What would be the FV in 2019?

**Solution: **In excel, we will put the equation as follows –

**= FV (10%, 3, 1, – 100) **

**= US $129.79**

**#2 – FVSCHEDULE **** : Financial Function in Excel **

This financial function is important when you need to calculate the future value with the variable interest rate. Have a look at the function below –

**FVSCHEDULE = (Principal, Schedule)**

- Principal = Principal is the present value of a particular investment
- Schedule = A series of interest rate put together (in case of excel, we will use different boxes and select the range)

**FVSCHEDULE Example: **

M has invested US $100 at the end of 2016. It is expected that the interest rate will change every year. In 2017, 2018 & 2019, the interest rates would be 4%, 6% & 5% respectively. What would be the FV in 2019?

**Solution:** In excel, we will do the following –

**= FVSCHEDULE (C1, C2:C4)**

**= US $115.752**

**#3 – Present Value (PV) ****: Financial Function in Excel **

If you know how to calculate FV, it’s easier for you to find out PV. Here’s how –

**PV = (Rate, Nper, [Pmt], FV, [Type])**

- Rate = It is the interest rate/period
- Nper = Number of periods
- [Pmt] = Payment/period
- FV = Future Value
- [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

**PV Example: **

The future value of an investment is US $100 in 2019. The payment has been made yearly. The interest rate is 10% p.a. What would be the PV as of now?

**Solution: **In excel, we will put the equation as follows –

**= PV (10%, 3, 1, – 100) **

**= US $72.64**

**#4 – Net Present Value (NPV)**** : Financial Function in Excel **

Net Present Value is the sum total of positive and negative cash flows over the years. Here’s how we will represent it in excel –

**NPV = (Rate, Value 1, [Value 2], [Value 3]…)**

- Rate = Discount rate for a period
- Value 1, [Value 2], [Value 3]… = Positive or negative cash flows
- Here, negative values would be considered as payments and positive values would be treated as inflows.

**NPV Example**

Here is a series of data from which we need to find NPV –

Details |
In US $ |

Rate of Discount |
5% |

Initial Investment |
-1000 |

Return from 1^{st} year |
300 |

Return from 2^{nd} year |
400 |

Return from 3^{rd} year |
400 |

Return from 4^{th} year |
300 |

Find out the NPV.

**Solution: **In Excel, we will do the following –

**=NPV (5%, B4:B7) + B3**

**= US $240.87**

Also, have a look at this article – NPV vs IRR

**#5 – XNPV **** : Financial Function in Excel **

This financial function is similar as the NPV with a twist. Here the payment and income are not periodic. Rather specific dates are mentioned for each payment and income. Here’s how we will calculate it –

**XNPV = (Rate, Values, Dates)**

- Rate = Discount rate for a period
- Values = Positive or negative cash flows (an array of values)
- Dates = Specific dates (an array of dates)

**XNPV Example**

Here is a series of data from which we need to find NPV –

Details |
In US $ |
Dates |

Rate of Discount |
5% | |

Initial Investment |
-1000 | 1^{st} December, 2011 |

Return from 1^{st} year |
300 | 1^{st} January, 2012 |

Return from 2^{nd} year |
400 | 1^{st} February, 2013 |

Return from 3^{rd} year |
400 | 1^{st} March, 2014 |

Return from 4^{th} year |
300 | 1^{st} April, 2015 |

**Solution: **In excel, we will do as following –

**=XNPV (5%, B2:B6, C2:C6)**

**= US$289.90**

**#6 – PMT**** : Financial Function in Excel **

In excel, PMT denotes the periodical payment required to pay off for a particular period of time with a constant interest rate. Let’s have a look at how to calculate it in excel –

**PMT = (Rate, Nper, PV, [FV], [Type])**

- Rate = It is the interest rate/period
- Nper = Number of periods
- PV = Present Value
- [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)
- [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

**PMT Example**

US $1000 need to be paid in full in 3 years. Interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PMT.

**Solution: **In excel, we will compute it in the following manner –

**= PMT (10%, 3, 1000)**

**= – 402.11 **

**#7 – PPMT**** : Financial Function in Excel **

It is another version of PMT. The only difference is this – PPMT calculates payment on principal with a constant interest rate and constant periodic payments. Here’s how to calculate PPMT –

**PPMT = (Rate, Per, Nper, PV, [FV], [Type])**

- Rate = It is the interest rate/period
- Per = The period for which the principal is to be calculated
- Nper = Number of periods
- PV = Present Value
- [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)

**PPMT Example**

US $1000 need to be paid in full in 3 years. Interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PPMT in first year and second year.

**Solution: **In excel, we will compute it in the following manner –

**1 ^{st} year,**

**=PPMT (10%, 1, 3, 1000)**

**= US $-302.11**** **

**2 ^{nd} year,**

**=PPMT (10%, 2, 3, 1000)**

**= US $-332.33**

**#8 – Internal Rate of Return (IRR)**** : Financial Function in Excel **

To understand whether any new project or investment is profitable or not, firm uses IRR. If IRR is more than the hurdle rate (acceptable rate/ average cost of capital), then it’s profitable for the firm and vice-versa. Let’s have a look, how we find out IRR in excel –

**IRR = (Values, [Guess])**

- Values = Positive or negative cash flows (an array of values)
- [Guess] = An assumption of what you think IRR should be

**IRR Example**

Here is a series of data from which we need to find IRR –

Details |
In US $ |

Initial Investment |
-1000 |

Return from 1^{st} year |
300 |

Return from 2^{nd} year |
400 |

Return from 3^{rd} year |
400 |

Return from 4^{th} year |
300 |

Find out IRR.

**Solution: **Here’s how we will compute IRR in excel –

**= IRR (A2:A6, 0.1)**

**= 15%**

**#9 – Modified Internal Rate of Return (MIRR)**** : Financial Function in Excel **

Modified Internal Rate of Return is one step ahead of Internal Rate of Return. MIRR signifies that the investment is profitable and is used in business. MIRR is calculated by assuming NPV as zero. Here’s how to calculate MIRR in excel –

**MIRR = (Values, Finance rate, Reinvestment rate)**

- Values = Positive or negative cash flows (an array of values)
- Finance rate = Interest rate paid for the money used in cash flows
- Reinvestment rate = Interest rate paid for reinvestment of cash flows

**MIRR Example**

Here is a series of data from which we need to find MIRR –

Details |
In US $ |

Initial Investment |
-1000 |

Return from 1^{st} year |
300 |

Return from 2^{nd} year |
400 |

Return from 3^{rd} year |
400 |

Return from 4^{th} year |
300 |

Finance rate = 12%; Reinvestment rate = 10%. Find out IRR.

**Solution: **Let’s look at the calculation of MIRR –

**= MIRR (B2:B6, 12%, 10%)**

**= 13%**

**#10 – XIRR **** : Financial Function in Excel **

Here we need to find out IRR which has specific dates of cash flow. That’s the only difference between IRR and XIRR. Have a look at how to calculate XIRR in excel financial function –

**XIRR = (Values, Dates, [Guess])**

- Values = Positive or negative cash flows (an array of values)
- Dates = Specific dates (an array of dates)
- [Guess] = An assumption of what you think IRR should be

**XIRR Example**

Here is a series of data from which we need to find XIRR –

Details |
In US $ |
Dates |

Initial Investment |
-1000 | 1^{st} December, 2011 |

Return from 1^{st} year |
300 | 1^{st} January, 2012 |

Return from 2^{nd} year |
400 | 1^{st} February, 2013 |

Return from 3^{rd} year |
400 | 1^{st} March, 2014 |

Return from 4^{th} year |
300 | 1^{st} April, 2015 |

**Solution: **Let’s have a look at the solution –

**= XIRR (B2:B6, C2:C6, 0.1)**

**= 24%**

**#11 – NPER **** : Financial Function in Excel **

It is simply the number of periods one requires to pay off the loan. Let’s see how we can calculate NPER in excel –

**NPER = (Rate, PMT, PV, [FV], [Type])**

- Rate = It is the interest rate/period
- PMT = Amount paid per period
- PV = Present Value
- [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)

**NPER Example**

US $200 is paid per year for a loan of US $1000. Interest rate is 10% p.a. and the payment needs to be done yearly. Find out the NPER.

**Solution: **We need to calculate NPER in the following manner –

**= NPER (10%, -200, 1000)**

**= 7.27 years**

**#12 – RATE **** : Financial Function in Excel **

Through RATE function, we can calculate the interest rate needed to pay to pay off the loan in full for a given period of time. Let’s have a look at how to calculate RATE financial function in excel –

**RATE = (NPER, PMT, PV, [FV], [Type], [Guess])**

- Nper = Number of periods
- PMT = Amount paid per period
- PV = Present Value
- [Guess] = An assumption of what you think RATE should be

**RATE Example**

US $200 is paid per year for a loan of US $1000 for 6 years and the payment needs to be done yearly. Find out the RATE.

**Solution:**

**= RATE (6, -200, 1000, 0.1)**

**= 5%**

**#13 – EFFECT **** : Financial Function in Excel **

Through EFFECT function, we can understand the effective annual interest rate. When we have the nominal interest rate and the number of compounding per year, it becomes easy to find out the effective rate. Let’s have a look at how to calculate EFFECT financial function in excel –

**EFFECT = (Nominal_Rate, NPERY)**

- Nominal_Rate = Nominal Interest Rate
- NPERY = Number of compounding per year

**EFFECT Example**

A payment needs to be paid with a nominal interest rate of 12% when the number of compounding per year is 12.

**Solution:**

**= EFFECT (12%, 12)**

**= 12.68%**

**#14 – NOMINAL **** : Financial Function in Excel **

When we have the effective annual rate and the number of compounding periods per year, we can calculate NOMINAL rate for the year. Let’s have a look at how to do it in excel –

**NOMINAL = (Effect_Rate, NPERY)**

- Effect_Rate = Effective annual interest rate
- NPERY = Number of compounding per year

**NOMINAL Example**

A payment needs to be paid with an effective interest rate or annual equivalent rate of 12% when the number of compounding per year is 12.

**Solution:**

**= NOMINAL (12%, 12)**

**= 11.39%**

**#15 – SLN ****: Financial Function in Excel **

Through SLN function, we can calculate depreciation via straight line method. In excel, we will look at SLN financial function as follows –

**SLN = (Cost, Salvage, Life)**

- Cost = Cost of asset when bought (initial amount)
- Salvage = Value of asset after depreciation
- Life = Number of periods over which the asset is being depreciated

**SLN Example**

The initial cost of machinery is US $5000. It has been depreciated in Straight Line Method. The machinery was used for 10 years and now the salvage value of machinery is US $300. Find depreciation charged per year.

**Solution:**

**= SLN (5000, 300, 10)**

**= US $470 per year**

You may also look at Depreciation Complete Guide

Raj says

Thanks Dheeraj.

It’s a great read and very helpful.

Dheeraj Vaidya says

Thanks Raj!

Monika says

Thanks Mr Dheeraj

Dheeraj Vaidya says

thanks Monika!

Patrick Vangoidsenhoven says

Thanks Dheeraj, a good mix of details and keeping the oversight.

Dheeraj Vaidya says

thanks Patrick!

Priyank says

Hi dear you are doing good job making people financially literate. Would you please explain how to handle qtrly/monthly payouts while calculating FV/PV

Dheeraj Vaidya says

Hi Priyank,

If you make monthly payments on a three-year loan at 12 percent annual interest, use 12%/12 for rate and 3*12 for nper. If you make annual payments on the same loan, use 12% for rate and 3 for nper.

Hope this clarifies the same.

Mveleli says

Dear Dheeraj Vaidya

Thanks a great deal for all you assistance herein and appreciate all the knowledge tank we are getting herein.

Dheeraj Vaidya says

thanks Mveleli, Glad you liked this site.

Rubel Fernando says

This blog is really awesome, the list of financial functions in excels which you have mentioned has helped me a lot and were very useful for me in practical situations. Thank you so much for sharing this blog.

Dheeraj Vaidya says

thanks Rubel!