Top 15 Financial Functions in Excel

Top 15 Financial Functions in Excel

Microsoft Excel is the most important tool of  Investment Bankers Investment Bankers Investment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read moreand Financial Analysts. They spent more than 70% of the time 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.

Financial Functions in Excel

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

#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 –

Future Value - Financial Functions in Excel

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 the 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 –

Future Value - Financial Functions in Excel - Example

= 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 - Financial Functions in Excel

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 the 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 - Financial Functions in Excel - Example

= 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 - Financial Functions in Excel

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 in the 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 - Financial Functions in Excel - Example

= 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 - Financial Functions 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 –

DetailsIn US $
Rate of Discount5%
Initial Investment-1000
Return from 1st year300
Return from 2nd year400
Return from 3rd year400
Return from 4th year300

Find out the NPV.

Solution: In Excel, we will do the following –

NPV - Financial Functions in Excel - Example

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

= US $240.87

Also, have a look at this article – NPV vs IRRNPV Vs IRRThe Net Present Value (NPV) method calculates the dollar value of future cash flows which the project will produce during the particular period of time whereas the internal rate of return (IRR) calculates the profitability of the project.read more

#5 – XNPV: Financial Function in Excel 

This financial function is similar to 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 - Financial Functions in Excel

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 –

DetailsIn US $Dates
Rate of Discount5% 
Initial Investment-10001st December 2011
Return from 1st year3001st January 2012
Return from 2nd year4001st February 2013
Return from 3rd year4001st March 2014
Return from 4th year3001st April 2015

Solution: In excel, we will do as follows –

XNPV - Financial Functions in Excel - Example

=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 - Financial Functions 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

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

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

PMT - Financial Functions in Excel Example

= 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 - Financial Functions in Excel

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”)
  • [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)

PPMT Example

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

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

1st year,

PPMT - Financial Functions in Excel Example 1

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

= US $-302.11 

2nd year,

PPMT - Financial Functions in Excel Example 2

=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, the firm uses IRR. If IRR is more than the hurdle rateHurdle RateThe hurdle rate in capital budgeting is the minimum acceptable rate of return (MARR) on any project or investment required by the manager or investor. It is also known as the company’s required rate of return or target rate.read more (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 - Financial Functions 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 –

DetailsIn US $
Initial Investment-1000
Return from 1st year300
Return from 2nd year400
Return from 3rd year400
Return from 4th year300

Find out IRR.

Solution: Here’s how we will calculate IRR in excel

IRR - Financial Functions in Excel Example

= IRR (A2:A6, 0.1)

= 15%

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

The Modified Internal Rate of Return is one step ahead of the 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 excelMIRR In ExcelMIRR or (modified internal rate of return) in excel is an in-build financial function to calculate the MIRR for the cash flows supplied with a period. It takes the initial investment, interest rate and the interest earned from the earned amount and returns the MIRR.read more

MIRR - Financial Functions in Excel

MIRR = (Values, Finance rate, Reinvestment rate)

MIRR Example

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

DetailsIn US $
Initial Investment-1000
Return from 1st year300
Return from 2nd year400
Return from 3rd year400
Return from 4th year300

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

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

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

= 13%

MIRR - Financial Functions in Excel Example

#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 XIRRDifference Between IRR And XIRRIRR function determines the internal rate of return on the cash flows after considering the discount rate and evaluates the return on investment over some time. In contrast, the XIRR function is the extended internal rate of return that considers cash flows and discount rates to measure the return accurately.read more. Have a look at how to calculate XIRR in excel financial function –

XIRR - Financial Functions in Excel

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 –

DetailsIn US $Dates
Initial Investment-10001st December 2011
Return from 1st year3001st January 2012
Return from 2nd year4001st February 2013
Return from 3rd year4001st March 2014
Return from 4th year3001st April 2015

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

XIRR - Financial Functions in Excel Example

= 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 - Financial Functions 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”)
  • [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)

NPER Example

US $200 is paid per year for a loan of US $1000. The 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 - Financial Functions in Excel Example

= NPER (10%, -200, 1000)

= 7.27 years

#12 – RATE: Financial Function in Excel 

Through the RATE function in excel, we can calculate the interest rate needed 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 - Financial Functions in Excel

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

  • Nper = Number of periods
  • 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”)
  • [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)
  • [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 - Financial Functions in Excel Example

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

= 5%

#13 – EFFECT: Financial Function in Excel 

Through the 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 - Financial Functions in Excel

EFFECT = (Nominal_Rate, NPERY)

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

EFFECT Example

Payment needs to be paid with a nominal interest rateNominal Interest RateNominal Interest rate refers to the interest rate without the adjustment of inflation. It is a short term interest rate which is used by the central banks to issue loans.read more of 12% when the number of compounding per year is 12.

Solution:

EFFECT - Financial Functions in Excel Example

= EFFECT (12%, 12)

= 12.68%

#14 – NOMINAL: Financial Function in Excel 

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

Nominal - Financial Functions in Excel

NOMINAL = (Effect_Rate, NPERY)

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

NOMINAL Example

Payment needs to be paid with an effective interest rateEffective Interest RateEffective Interest Rate, also called Annual Equivalent Rate, is the actual rate of interest that a person pays or earns on a financial instrument by considering the compounding interest over a given period.read more or annual equivalent rate of 12% when the number of compounding per year is 12.

Solution:

Nominal - Financial Functions in Excel Example

= NOMINAL (12%, 12)

= 11.39%

#15 – SLN: Financial Function in Excel 

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

SLN - Financial Functions in Excel

SLN = (Cost, Salvage, Life)

  • Cost = Cost of an 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 the Straight Line Method. The machinery was used for 10 years, and now the salvage value of the machinery is the US $300. Find depreciation charged per year.

Solution:

SLN - Financial Functions in Excel Example

= SLN (5000, 300, 10)

= US $470 per year

You may also look at Depreciation Complete Guide

Top 15 Financial Functions in Excel Video

 

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Comments

  1. Jasbir says

    Thanks a lot Dheeraj ji, We don’t learn everything in college or in an Institute.

  2. saumya says

    thanks, its is use full information

  3. arun says

    very helpful, thanks for putting all these in one place

  4. Jithmi Samodya says

    Perfect note.we can easily understand this functions by ourselves. Thankyou.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  5. Raj says

    Thanks Dheeraj.
    It’s a great read and very helpful.

    • Dheeraj Vaidya says

      Thanks Raj!

  6. Monika says

    Thanks Mr Dheeraj

    • Dheeraj Vaidya says

      thanks Monika!

  7. Patrick Vangoidsenhoven says

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

    • Dheeraj Vaidya says

      thanks Patrick!

  8. 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.

  9. 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.

  10. 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!