Color Formatting in Financial Models
Color Formatting in the financial model refers to the display of format or display of information that assist the reader or user in identifying certain pairs of information & in correlating the things easily. The most important parameters for color formatting are consistency, efficiency & clarity. Lack of any of these may not serve the purpose of providing the financial model.
Color formatting is done to the cells & data within each financial model. The most commonly used color formatting is as follow:
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- Blue: For hardcoded (i.e. typed) inputs. It can be some historical information or something which you assume or the key driver (such as rate of interest, rate of tax, output, etc.) used in the model.
- Black: For calculation & cell references within the same sheet (i.e. all formulae are in black font)
- Green: For references made to other sheets. However, one may keep the color format here as black & may avoid this color.
- Red: For external links outside the working file.
Thus, color the cell & contents within each cell helps the readers. This also helps in linking the flow of different pieces of data within different sheets & files.
Financial Modeling Color Formatting Template
Let’s take a classic template for understanding:
- We have used the color codes as defined in the topic.
- The flow is maintained for assumption, calculations & summary.
Shading Color Formatting
- Shading color formatting means to apply a similar texture to each heading, or each sub-heading, or each featured line item. Choose one color format for each of these & make sure you maintain the same format for each working sheet within the file.
- Heading means name of the company & name of the working sheet. For Example, the Name of the company is “ABC Inc” & the name of the working sheet is “Balance Sheet” or “Profitability Statement” or “Discounted Cash Flow”. Heading can be just bold & different font types with underline & a little higher font size. One may prefer to keep a certain color in the background.
- Sub-heading means the reference cell for the columns, i.e. particulars, years, etc. The subheading should ideally be light grey with the black font for the cell. One may prefer a light blue color with black font.
- The featured line item means the important area or important line item in the file. It can be a total of assets or total of liabilities or profits or final answer, etc. One may keep any color with bold font.
Importance of Financial Modeling Color Formatting
- Color formatting helps easy identification of cells.
- A standard is set for readers for the identification of information.
- It gets the reader involved in the working of the model.
- The woking file becomes more attractive & appealing.
- A consistent flow can be maintained for enhancing the understandability of the model.
This has been a guide to Financial Modeling Color Formatting. Here we discuss the best color schemes for financial modeling along with its importance and downloadable excel template. You may find more about finance from the following articles –