Financial Modelling in Excel

Financial Modelling in Excel

January 1

2010 This document is the property of Celsoft Corporation and is meant for the participants of Celsoft Training Workshops only. Any use or reproduction of this manual without the authority of Celsoft is strictly prohibited. Manual

Financial Modelling in Excel (v2007) © Celsoft Corporation

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CONTENTS

Introducing Financial Modelling……………………………………… 3

Financial Modelling Life Cycle………………………………………… 8

Introducing Excel 2007…………………………………………………..23

Keyboard Shortcuts……………………………………………………….27

Hyperlinks……………………………………………………………………28

Naming Cells & Ranges…………………………………………….…… 29

Relative, Mixed & Absolute Referencing…………………………… 32

Worksheet Protection………………………………………………….…34

Data Validation……………………………………………………….…….36

Auto Filtering & Advanced Filtering…………………………………..40

Subtotal, Outline, Grouping & Ungrouping………………………….44

Consolidation……………………………………………………………….45

Formula Auditing…………………………………………………………..50

Conditional Formatting…………………………………………………..51

Introducing Excel functions…………………………………………….54

Logical functions…………………………………………………………..61

Worksheet Controls……………………………………………………….62

Lookup functions…………………………………………………………..68

Statistical functions……………………………………………………….71

Text functions………………………………………………………………77

Date & Time functions……………………………………………………78

Pivot Tables…………………………………………………………………81

Data Tables…………………………………………………………………87

Scenario Manager…………………………………………………………90

Goal seek…………………………………………………………………….95

Solver…………………………………………………………………………97

Analysis Toolpak………………………………………………………….102

Recording macros………………………………………………………..103


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Objectives Understanding what financial modeling is and what it involves.

Understanding the importance of the modeling course to our jobs.

Understand the financial modeling life cycle in detail.

FINANCIAL MODELLING

1. INTRODUCTION

FINANCIAL MODELLING is the practice of distilling numerical data with predictive insights and

business logic to derive answers to business questions.

FOR EXAMPLE

In a planning and forecasting situation for a Treasury Department of a financial institution, the

model might start with an analysis of the portfolio for measures such as:

• margins by product,

• deposits by sector,

• concentration ratios,

• gap analysis,

• risk analysis


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• ratio analysis and many more.

This will be followed by predictive insights of economic measures and expectations of the

department e.g.

• Forecast interest rates;

• Forecast inflation rates;

• Forecast market liquidity;

• Expected GDP;

• Forecast balance of payments and exchange rates;

• Dealing strategy for the company etc,

These factors will be integrated in a robust financial model to forecast the expected treasury

income, liquidity, balance sheet and to allow Treasurers to do what-if analysis and sensitivity

analysis to guide Treasury strategy.

Modelling can be done by employing various types of software e.g. Spreadsheets, Quantrix etc.

In this training session, our focus shall be on spreadsheet modelling.

WHY MODELLING

Necessary Skill - The use of Excel is a core skill for managers and non-managers because most

work now require the use of spreadsheets.

No formal Training - However, few users receive formal training in modelling techniques and

the use of Excel.

Powerful tool - Excel is a powerful tool, which can help automate a number of processes as

well as guiding decision-making.

No professionalism & Standardization - Since the introduction of spreadsheet model

development has not taken any formal shape since users have not yet regarded modelling as a

profession which can actually be standardized.

CURRENT ‘MODELLING’ IN AFRICA

Users do not develop models, they develop templates and tables.

No formal approach to model development, users start at the build stage.

The models/ templates developed are not robust; they are very simple and ill-defined.

Usually numbers are hardcoded in cells with no relationship with each other.


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The templates are not reliable as you can see circular references, errors and some formulas that

you can’t follow and some parts having been deleted.

Inputs and formulas are combined and not protected to prevent accidental deletions.

Not useable by another person who has not developed them.

No deliberate action by organizations to set up models or modelling units/departments. Very

important decisions are made without the use of a computer model.

No deliberate plan to train staff in financial modelling.

Example: No Modelling Skills Power of Modelling

2. SPREADSHEET MODELLING

SPREADSHEET MODELLING is a generic term that is used to describe any form of analysis

which is undertaken using spreadsheets. Spreadsheet modelling is also commonly referred to as

‘financial modelling’ or simply ‘modelling’.

The spreadsheet is a powerful tool used by almost every organization and nearly every business

decision of any importance is backed up with a spreadsheet model of the financial projections.

But there is a big difference between the best and worst examples of spreadsheet modelling.

It has been established through research that, for major transactions with large sums of money

at stake, most modellers have no formal training in good modelling techniques and that their

organizations do not have even the most rudimentary internal standards.

What can you do? The answer is by taking steps to understand and control the process of

spreadsheet development, define the objectives and calculations, design the spreadsheet so that

it is easy to understand, test the results and use your model effectively you can achieve much

more with your spreadsheet.

Nowadays spreadsheets are being replaced by better, multi-dimensional modeling software like

the leading Quantrix Modeler developed by Quantrix in America. Visit www.quantrix.com for

more.

http://www.quantrix.com/�


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The Evolution of Spreadsheet Modelling

Spreadsheet modelling is a relatively new area of expertise within the business world. Functional

spreadsheet applications were first developed in the 1980s with the release of Lotus 1-2-3.

Microsoft Excel® for Windows was released in 1987 but it was not until the release of Microsoft

Excel 95® that spreadsheet applications became widely used within the business world. Since

the release of Microsoft Excel 95®, spreadsheet application functionality has improved at an

exponential rate, providing spreadsheet model developers with the tools to construct increasingly

sophisticated spreadsheet models.

With the rise of spreadsheet application technology, both simple and complex spreadsheet

models have become more prevalent throughout the business world. Spreadsheets are now

generally accepted as being the primary vehicle for modelling in business.

The demand for spreadsheet modelling continues to rise, with decision makers relying more

intensively on spreadsheet modelling analysis as the basis for their decisions. In order to meet

the increasingly complex demands of model users, model developers have had to significantly

improve their spreadsheet modelling skills. As such, spreadsheet model development has become

a highly skilled area of expertise within the business community.

3. TYPES OF MODELS

There are different types of models but in this manual, we will focus on the simple classification

of models into the following types:

Complex Models

For complex modelling problems, but where there is a good understanding of the problem that is

being modelled and there is adequate time for the development of an appropriate model.

Applying each of the six stages helps to ensure the development of a robust model, reducing the

risk of errors and getting the most from the modelling process.

Examples of types of models that fall into this category are long term financial planning or

forecasting models that will be developed once and used many times.


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Simple Models

The principles of good spreadsheet design apply equally to the simplest or most complex of

models.

Examples of simple models are ones that take only a day of two to complete, or models that are

used only by the developer for his or her own thought process.

Other Types of Financial Models

Deterministic

This is the most common type of model, and allows for specific data input with results defined by

formulas. A change to the input data will result in a change to the calculated results. Generally,

changes can be made backwards and forwards. “Forward” changes are commonly known as

“what-ifs” (i.e. changes to input data), and backward changes are known as “Goal seeks”

Optimization

This is linear programming. A model is defined with sets of constraints (e.g. “only 40 hours are

available”) and then manipulates the input data in line with the constraints to either maximize or

minimize a result.


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THE MODELLING LIFE CYCLE

All computer models go through different stages of development, but the accessibility and ease

of use of spreadsheet packages sometimes make it easy for these stages to become blurred.

Experience of the way that models grow and evolve will help you develop better models.

Each of the six stages of model development is described in detail below:

SCOPE

This stage is where we assess the nature, scale and complexity of the model required. During the

scope stage you should:

• Define the objectives of the model (Decide what needs to be included in the model and

what can be omitted). Some model features may be left for complexity and time

challenges or may be left for future considerations as add-ons.

• Consider the level of detail required in the input and logical assumptions (complexity).

The scope stage is the time to make sure that you understand, at least in broad terms,

what data is required for the model and how you are going to obtain it.;

• Understand in outline how the model will work;

• Estimate the time and resource required for the model development; and


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• Agree the above with the key stakeholders.

SPECIFY

• To specify is to define the logic of the model in sufficient detail to provide an

unambiguous statement of how the results will be calculated. For modelling projects

where the logic of the model is difficult to define, specification is time consuming and this

stage may need to be revisited a number of times.

• We recommend that you separate the process of specifying the model calculations from

actually building the model.

• It allows you to tackle the most difficult problems associated with the model before you

have started to build it.

• Logically, all spreadsheet models should flow from inputs through calculations to the

model results. The process of model specification should run the other way around,

because it is model results that are most important and should determine the structure of

the model.

• Try to avoid letting the availability of input data determine the output that you produce.

The model objectives should drive the results required, the results should drive the

calculations and the calculations should drive the required inputs.

• In short, the specify stage involves defining the model results, calculations and inputs.

Calculations can be defined by drawing a simple bubble diagram as shown below:


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• Specification model inputs can be done as shown in the table below:

Data input Format Units Frequency Status Validation Source Notes

Interest rate %, 2dp % One entry only.

Policy variable.

Must be > 0. Finance dept.

The rate applied on any overdraft balances.

Sales Numeric 000's units One entry per month.

Forecast Must be > 0. Marketing dept.

Price Numeric ZMK One entry per month.

Agreed estimate.

Must be > 0. Marketing dept.

Debtor period Numeric Days One entry only.

Estimated from budget data.

Must be > 0; must be < model period.

Finance dept.

Capital expenditure

Numeric ZMK000's One entry per month.

Forecast Capex model (auto transfer).

Asset life Numeric Years One entry only.

Policy variable.

Must be > 10. Finance dept.

Calculated on a straight line basis.

Balance sheet – opening balance

Numeric £000's Start year only.

Firm figure. Finance dept.

Year end Date Start year only.

Firm figure. Finance dept.

Hints and tips for model specification Are constants constant?

Avoid using hard coded numbers in the definition of a formula. For example, the formula:


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Sale price including VAT = Sale price excluding VAT × 1.175 assumes that the VAT rate is

17.5%. It works fine, until the VAT rate changes.

To avoid having to search through every formula in the model for calculations which assume the

VAT rate, set up an input cell for the VAT rate and refer to that instead. For a single cell of this

sort, it is useful to create a range name, say “VAT rate”, so instead of typing the constant you

use the formula:

Sale price including VAT = Sale price excluding VAT × (1 + VAT rate)

If there is any change to the input assumption, or you want to run sensitivity, the constant can

be changed throughout the model instantly. Even if the constant never changes, the new formula

is much simpler to read and understand.

Real or nominal prices?

In financial models, a common problem is deciding whether to base monetary calculations on real

or nominal prices. Real prices are prices of a particular base year and do not increase with

inflation. Nominal prices, or money of the day, do include the effects of inflation.

Real prices are frequently used for projections because it is possible to separate market trends

from increases caused purely by inflation. For the same reason real prices are often used for

summary results, particularly to calculate year on year changes in revenues or costs.

To make conversion between real and nominal prices easy, it is a good idea to place the

calculation of an RPI index in a clear place where it can be referred to quickly.

Avoid circular references

Circular references should be avoided in model calculations. Frequently they are a sign of an

error in the logic.

The best way to avoid a circular reference in your specification is to construct your calculation

rules so that they always read from top to bottom and left to right: so that formulae always refer

to cells above or to the left.

DESIGN

• The design stage involves producing the most effective structure for the model. By following

some key guidelines it is possible to make your spreadsheet models significantly easier to use

and less prone to errors.


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• Before you design a spreadsheet, make sure that a spreadsheet is the most appropriate tool for

the job. For example where multi-dimensions are required, spreadsheets which are two

dimensional, will not be able to do the job.

• Discipline in the spreadsheet design is even more important to create easy to understand

spreadsheet models.

The Six Golden Rules of Spreadsheet model design

Rule 1: Separate inputs, calculations and results

• Inputs to a model should be placed on a separate part of the worksheet from calculations. It is

also a good idea to place those results which are produced by the model in a separate place from

intermediate calculations.

• Separating inputs helps to avoid confusion in using and maintaining models. It reduces the risk

that parts of the input data are overlooked or that calculations are overtyped with input figures.

Inputs should be separated physically on the sheet, but can also be separated by clear labeling

and colouring of the spreadsheet.

• When using multiple sheets, it can be a good idea to maintain a single sheet containing all of the

model inputs in one place. So, whenever an input assumption needs to be changed, the user

always knows where to go to look for it.

• An alternative design is to place inputs at the top of each sheet which requires them. This keeps

inputs fairly close to the calculations in which they will be used, while keeping them separate

from the calculation.

Rule 2: Use one formula per row or column

As far as possible, formulae should be written so that a single formula can be copied across the

entire row of calculations, or down the entire column. Designing a spreadsheet with one formula

per row leads to a number of practical benefits, such as:


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• quicker development, because every formula can be written in a single column, then

copied across;

• effective testing;

• robust updating and maintenance, because every time you change a formula in a cell you

know that it should be copied across the rest of the row; and

• straightforward documentation, in a specification which has one definition for each row

of the final model.

For some problems, producing a design with only one formula per row requires some careful

thought. But the benefits of the design far outweigh the extra work required.

Rule 3: Refer to the left and above

A well designed spreadsheet can be read like a book: from front to back, top to bottom and left

to right. This makes the spreadsheet easier to understand and reduces the risk of introducing a

circular reference to the calculation.

For example, if your model has a different time period in each column, each cell reference in a

formula could be:

• to an input or calculation further up the same column;

• to an input or calculation on an earlier sheet in the model; and

• to a calculation further down the sheet but in an earlier column, for example referencing

the closing balance calculated in the previous time period to use as the opening balance

in this time period.

Rule 4: Use multiple worksheets…

When a model contains sections which can usefully be repeated, such as a model of a company

with a number of similar business units, the best way to present it in a spreadsheet is to use one

worksheet for each repeatable block. This approach will allow for:

• quicker development, by creating one standard sheet which you can then copy a number

of times;

• easier updating, by grouping a number of sheets in the model you can update all of the

blocks of the model together, which would be impossible if the blocks were all kept on

the same sheet;

• quicker testing, by comparing the formulae in each of these sheets and making sure that

they are the same.

When the model for a number of subsidiaries in a business are similar, but not quite the same, it

is still a good idea to use comparable worksheets for each subsidiary. When some subsidiaries

require more detail, it is easy to develop a worksheet for the most complex example and then


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blank out the relevant sections for other subsidiaries. Do not delete any rows or columns, so that

the common elements on the different worksheets can still be edited together.

Rule 5: Use each column for the same purpose throughout the model

However many worksheets you use, it is good practice to always use the same layout for

columns on all worksheets.

For a financial model, an example column layout might be:

Columns A. and B. Units

Always using the same column for the same purpose makes the model easier to build and

reduces some of the risks of errors. For example: if January 2001 is always in column X then you

know that every formula that refers to January 2001 will also refer to column X.

Rule 6: Include a documentation sheet

Any model should contain some internal documentation. To make it noticeable, it is a good idea

to set aside the first sheet of the spreadsheet as a documentation sheet, used purely for model

control.

The documentation should include:

• a short description of the model’s purpose;

• who built the model;

• how to contact the person responsible for the model; and

• the model version number and when it was written.

Depending on the model, other useful items to include on the documentation sheet are:

• details of the data which is currently in the model;

• some brief instructions, describing the layout of the model or how to use it;

• a list of recent changes to the model; and

• a summary of key logical assumptions in the model.

Hints and tips for model design

While not being appropriate to all spreadsheets, the design ideas in this section can all be useful

ways to make your model easier to understand and use.

Colour coding

Colour coding is a useful technique to make spreadsheets easier to use. Examples of using colour

coding include:

• separating inputs from calculations, by making all of the cells requiring inputs the same

colour;


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• separating types of inputs, such as by making the inputs required from the finance

department one colour and those required from the marketing department another

colour;

• highlighting cells which are linked to external spreadsheets; and

Units

It is important to use clearly define summarization levels for inputs to a model, e.g., ZMK000 or

ZMK millions.

Formulae in English

For simple models, with little formal documentation, it can be useful to include an extra column

containing natural language ‘translations’ of the formulae in the model.

This helps to make the calculations in a model easy to understand, makes important logical

assumptions more transparent to anyone using the model and makes it possible for an

independent tester to check the coding in the model.

There are two ways of achieving this: Firstly by naming ranges and secondly by providing an

extra column that describes the formulae in English.

When the model development is complete, the column containing the formula can be safely

hidden, but not deleted to keep it as a record of what the model is attempting to do.

BUILD

The build stage is where the actual coding of the model takes place. Many spreadsheet models

start their life cycle here with only scant regard to the three stages outlined above.

This leads to:

• A model that is more complex than originally expected and takes longer to build;

• Assumptions being made that were not part of the original brief; and

• A lack of common understanding about what the model is doing. Hints and tips for model building

Keep formulae simple

To make your spreadsheet as easy to understand as possible, keep the formulae simple. Just as

a clearer writing style can be achieved by breaking up long sentences, a clearer model can be

achieved by breaking up long formulae.


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By breaking your calculations into a series of steps you make them easier to understand and

reduce the chances of making an error. In most models, the intermediate steps introduced here

are worth including for use in other calculations.

Use of named cells and ranges

Allocating meaningful range names to areas or cells within a spreadsheet can speed up the

development process, make the model easier to understand and reduce the risk of errors made

by referring to the wrong cell.

Build in error traps

It is good practice to include checks for errors in a model. These can be set up to check for

errors in the input data provided, or for errors in the model formulae.

Cross casting is the process of checking that the totals in the rows and columns of a spreadsheet

are consistent.

Error traps can be usefully included:

• on balancing financial statements, such as a balance sheet or a sources and applications

of funds statement;

• when equivalent data is provided from more than one source, for example when a total

revenue is both input and calculated from individual revenue lines; and

• when it is possible to perform a calculation in two equivalent but different ways.

When you use error traps, make sure you put them somewhere noticeable. For example, try

placing references to all of your error traps in a single block at the top of one of the front sheets.

Built in features

When a model is going to be used over a long period of time, especially if it is to be used by a

large number of people, Excel provides a number of facilities to make your spreadsheet more

robust. For example, you can:

• use cell protection to protect formulae in the model from being overtyped, while still

allowing input values to be changed;

• use the data validation feature, such that an error message will appear if inputs lie

outside a valid range.

TEST

To test a model is to root out errors and inconsistencies and to increase confidence in the results

that the model produces.


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While it is never possible to test a complex model to the extent that you can guarantee it to be

error free, this stage does provide the confidence that the model is producing reliable results.

Errors at this stage can undermine the credibility of both the model and its developer. The value

of testing can be measured against the potential cost of a wrong decision: if a model is being

used for an important and expensive business decision, the time and resource spent testing the

model is time and money well spent.

Testing should always be carried out by an independent third party.

Testing should be carried out by the developer during building and by an independent tester

after building but before use.

Types of tests are:

• Specification test – checking if model meets specifications.

• Formula tests –checking if formulae are calculating results properly

• Numeric tests- Re-computing the results and comparing with test results. Also involves

checking the validity of assumptions. Egg 120% margin is an invalid assumption.

• Robustness Test -The tester needs to consider all of the feasible circumstances under

which the model may be used in future. This includes doing an environment check where

one checks the ability of the model to work on a particular computer, memory or

network. Also involves boundary tests which check the behaviour of the model when

inputs reach sensible limits or checking if typing zeros in assumptions produce errors.

• Macro tests – Checking if all macros and buttons are working effectively.


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Common errors

With experience, you can learn to spot many of the most common spreadsheet errors very

quickly.

Formulae not copied

• Forgetting to copy the new formula across into the other cells in the row.

Wrong reference

• Nearly every formula in a spreadsheet refers back to another input or calculation. With the

quantity of references in any large spreadsheet, it is inevitable that you will make mistakes

and refer to the wrong cell.

Sum over the wrong range

• A similar mistake is to include the wrong cell reference in a SUM formula. It is particularly

easy to introduce this error when you insert an extra row in a block of cells that are being

summed. Insert a row in the middle of the block, and the formula will automatically adjust to

include the extra row, but insert a row immediately above or below the block and the new

row will be omitted.

Relative and absolute references

• Another commonly found error is caused by confusion between relative and absolute

references. Remember that a cell reference in a formula of the form ‘=D4’ will change if you

copy the formula across the row to E4, F4 and so on. Copied down a column it will change to

D5, D6, etc. If you use the reference ‘=$D$4’ it will not change when copied across or down.

You can also use semi-absolute references of the form $D4 or D$4.

• One technique to help avoid making this mistake is by following the fifth golden rule of

spreadsheet design, by using each column for the same purpose throughout the

spreadsheet. If you always use column D for constants, you know that every formula that

refers to column D should contain an absolute reference, such as $D$4, while references to

others columns should always be relative, for example E3.


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Unit errors

Mixing up the appropriate units for the elements in a calculation is another frequently occurring

problem. Especially common is confusion between the order of magnitude for inputs, such as £s

versus £000s.

USE

A best practice spreadsheet model is a powerful tool, but to realize its usefulness you need to

understand how to:

• Present useful information to help make decisions, not just print out numbers;

• Present sensitivities and scenarios to understand the important drivers in the business;

and

• Control the evolution of the model when further changes are required.

Presenting results

• A big difference to the usefulness of a model can be made by effective presentation of results.

Good presentation leads not just to easier communication of the results, but also improves the

perception of the quality of the underlying model.

Headers and footers Putting key information onto report headers and footers makes it much easier to keep track of

different model runs. Without them, it is easy to mix up out of date versions of model output

with the correct version. Include on the header or footer:

• the model file name and/or the model name and version number;

• the date and time of printing;

• the model user’s name;

Techniques for running scenarios


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Spreadsheet models are powerful tools for analysis. A successfully developed model can analyse

a variety of alternative situations and inform the decision making process. Using a model to

produce useful information requires skill, not just to generate computer printouts.

Data tables

One of the most powerful ways that a model can be used to improve understanding of a problem

is by illustrating the sensitivity of the results to varying some of the key input assumptions. It is

very easy to understand how your input assumptions affect the results by using Data tables.

Simulation

What do we mean by "simulation?"

When we use the word simulation, we refer to any analytical method meant to imitate a real-

life system, especially when other analyses are too mathematically complex or too difficult to

reproduce.

Without the aid of simulation, a spreadsheet model will only reveal a single outcome, generally

the most likely or average scenario. Spreadsheet risk analysis uses both a spreadsheet model and

simulation to automatically analyze the effect of varying inputs on outputs of the modeled

system.

One type of spreadsheet simulation is Monte Carlo simulation, which

randomly generates values for uncertain variables over and over to simulate a

model.

Monte Carlo Simulation

One of the problems with carrying out sensitivity analysis is combining the individual sensitivities

in the model, of which there may be many, in a way that realistically reflects the range of

possible outcomes that may occur in practice. A simple approach that is often used is to set all

the sensitivities to the worst case, and look at the results that this gives. However, by doing this

the downside of the project is vastly over-stated; in reality, it is unlikely that everything will go

wrong together.

Monte Carlo simulation is often used in business for risk and decision analysis, to help make

decisions given uncertainties in market trends, fluctuations, and other uncertain factors.


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Even if realistic combinations of sensitivities are used, simply applying these in the model do not

provide any information about how likely, or probable, the resultant outcome is.

The technique of Monte Carlo analysis overcomes these problems: it allows the user to combine

many sensitivities in many different ways, effectively running hundreds, or even thousands, of

scenarios. The output shows the range of possible results, and how probable each is. This

information enables the user to understand the effect that variations in the inputs have on the

output: in other words, this method makes clear the risks involved in the project.

This problem would require advanced risk analysis software like Risk Solver or Risk Analyser to

solve.

Graphs

Graphs allow faster assimilation of information than a page of numbers. Graphs are frequently

valuable as a way to introduce information, but usually need to be supported by the actual

numbers. Bear in mind that different people in your audience may have different needs, those

who just want to understand the basic trends may want to see the graphs while those who need

to understand more detail are likely to want to see the numbers behind it.

A common mistake is to use an inappropriate type of graph for the message you want to present.

Spreadsheet Modelling Best Practice and Standards

The Need for Standards & Conventions

As spreadsheet modelling activities and underlying organizations grow and become more

complex, the need for universal spreadsheet modelling standards and accountability behind

decision-making processes also grows. Traditionally, a lack of generally accepted principles

governing the model development process has resulted in model developers constructing models

according to individual tastes and preferences. This lack of standardization has often resulted in

unnecessary frustration and confusion as model developers have difficulty understanding and

utilizing models developed by others and model users have been forced to adapt to models on a

case by case basis.

In the absence of universal spreadsheet modelling standards the spreadsheet modelling sector

would continue to become more complex, disjointed and difficult for management and decision


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makers to control, unnecessarily creating significant costs and risks for business organizations.

Standards currently govern many areas of the business world. Some of the more prominent

examples include accounting standards and auditing standards. In general, there is considerable

standardization of reporting and analysis in relation to historical results, but very little

standardization in relation to forecasted results. Prior to the first release of these Best Practice

Spreadsheet Modelling Standards, there was little or no standardization within the spreadsheet

modelling sector. Despite this lack of standardization, spreadsheet models have still been used as

a fundamental component of the quantitative analysis which is undertaken in relation to almost

every major business decision.

The Best Practice Spreadsheet Modelling Standards and Conventions empower both model

developers and model users with the knowledge to improve the quality and efficiency of

spreadsheet modelling activities. In this regard, the primary spreadsheet modelling benefits of

adopting these Standards and Conventions are:

a) Improved quality & transparency

b) Decreased development time & cost

c) Minimization of error risk

d) Facilitation of efficient sharing of model development methodologies

e) Prevention of model redundancy

f) Alignment of the needs of model developers & model users


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Objectives

Introduce Microsoft Excel 2007 citing the major changes from earlier versions.

Understanding the Excel environment.

Understand some of the basic efficiency functionalities in Microsoft Excel.

GETTING STARTED WITH MICROSOFT EXCEL 2007

INTRODUCING EXCEL 2007

Excel, as you probably know, is the world’s most widely-used spreadsheet program, and is part of the

Microsoft Office suite. Other spreadsheet programs are available, but Excel is by far the most popular and

has become the world standard. Here are just a few of the uses for Excel:

Number crunching: Create budgets, analyze survey results, and perform just about any type of

financial analysis you can think of.

Creating charts: Create a wide variety of highly customizable charts.

Organizing lists: Use the row-and-column layout to store lists efficiently.

Accessing other data: Import data from a wide variety of sources.

Creating graphics and diagrams: Use Shapes and the new SmartArt to create professional-

looking diagrams.

Automating complex tasks: Perform a tedious task with a single mouse click with Excel’s

macro and Visual Basic Application (VBA) capabilities.

Parts of the Excel Screen That You Need to Know

Name Description

Quick Access Toolbar A toolbar that you customize to hold commonly-used commands

Ribbon The main location to find Excel’s commands. Clicking an item in the Tab

list changes the ribbon that’s displayed.


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Introducing the Ribbon

The most dramatic change in Office 2007 is the new user interface. Traditional menus and

toolbars are gone, and they’ve been replaced with the Ribbon. Office 2007 is the first software in

history to use this new interface, and it remains to be seen whether it will catch on and replace

traditional menus and toolbars.

1

Ribbon tabs

The commands available in the Ribbon vary, depending upon which tab is selected. The Ribbon is

arranged into groups of related commands.

In addition to the standard tabs, Excel 2007 also includes contextual tabs. Whenever an object

(such as a chart, a table, or a SmartArt diagram) is selected, specific tools for working with that

object are made available in the Ribbon.

THE QUICK ACCESS TOOLBAR

In previous versions of Excel, end users were free to customize their menus and toolbars. Things

have changed in Excel 2007. Now, the only end user customization option is the Quick Access

Toolbar (QAT). Normally, the QAT appears on the left side of the title bar. Alternatively, you can

display the QAT below the ribbon. Right-click the QAT and select Show Quick Access Toolbar

below Ribbon.

By default, the QAT contains three tools: Save, Undo, and Repeat. You can, of course, customize

the QAT by adding other commands that you use often. To add a command from the Ribbon to

your QAT, right-click the command and choose Add to Quick Access Toolbar. If you click the

downward-pointing arrow to the right of the QAT, you see a drop-down menu with some

additional commands that you might want to place in your QAT.

Excel has commands that aren’t available in the Ribbon. In most cases, the only way to access

these commands is to add them to your QAT.

It is accessed by right-clicking on any menu tab, and selecting “Customize Quick Access

Toolbar…”


25

Note the following:

1. You can select from a category of commands (the list below shows the “All Commands” category

2. The down and up arrows on the right-hand side of the dialogue boxes are used for

repositioning the tools in your toolbar.

3. Tools can be removed from the Quick Access Toolbar by right-clicking them

EXERCISE – CUSTOMISING THE QUICK ACCESS TOOLBAR

The tools shown below will be useful during the course insert these tools onto your Quick Access Toolbar

if not already there:


26

Excel 2003

1. Select Tools/Customize

2. Select the “Commands” tab

3. Drag the tools from the right-hand box onto your toolbar at the top of the screen

INSTALLING THE REQUIRED ADD-INS

Two add-in programs will be required during the course

• Solver Add-in

To install these two add-ins, proceed as follows:

1. Click on the Office button. Select "Excel Options"/Add-Ins

2. Select Analysis Toolpak

3. Click GO

4. In the dialogue box presented tick “Analysis Toolpak”

5. Do the same for Solver Add-in

Excel 2003 - To install these two add-ins, proceed as follows:

1. Select Tools/Add-ins

2. Click on the Analysis Toolpak and Solver-Addin check boxes


27

Application

Fast and efficient use of Excel tools.

Selected Useful Keyboard Shortcuts

Ctrl A Select entire sheet

Ctrl B Bold

Ctrl C Copy

Ctrl D Fill down

Ctrl F Find

Ctrl G Go to

Ctrl H Replace

Ctrl I Italics

Ctrl K Hyperlink

Ctrl N New sheet

Ctrl O Open file

Ctrl P Print

Ctrl R Fill right - Copy the formula from the cell on the left of the active cell

Ctrl S Save

Ctrl U Underline

Ctrl V Paste

Ctrl X Cut

Ctrl Z Undo

Ctrl Pg Dn Move to the next sheet

Ctrl Pg Up Move to the previous sheet

Ctrl Arrow Move to the end of the row (or column) in the direction of the arrow

Ctrl End Go to bottom right-hand corner of spreadsheet

Ctrl Home Go to cell A1

Ctrl 1 Format cells

Ctrl F3 Define a name – Name Manager

Ctrl ~ Display the formulas in the worksheet


28

Application

Jump from one sheet to another efficiently.

Link to a reference file or website efficiently.

EXCEL’S BASIC EFFICIENCY TOOLS

Hyperlinks

• Hyperlinks can be inserted into a spreadsheet linking a cell with a cell in another sheet or

another file.

• Give the cell you wish to link to (in the file you wish to link to) a range name, e.g.

Income Statement

• Select the cell you wish to link from (cell C3 in our example)

• Select the commands “Insert/Link/Hyperlink”. (2003 – Insert/Hyperlink) The

dialogue box below appears.

• Click on “Place in This Document” (see the left hand side of the dialogue box), and select

the desired “Defined name” (the cell’s range name)

• Click “OK”


29

Benefits

Efficient referencing of a cell

Readable formulas that simply model auditing and testing.

Using other Excel techniques including referencing in VBA.

Naming Cells & Ranges

You can assign any worksheet cell or range a name and then use that name in a formula.

Reasons:

• Ease of reference

• Required by certain functions.

• Makes model auditing easy.

Manually, with the command Formulas/Defined Names/Define Name. (2003

- Insert/Names/Define) or by clicking in the Name box and typing in the name,


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Automatically, with the commands Formulas/Defined Names/Create from

Selection (2003 - Insert/Names/Create), and directing Excel to use the column headings

and/or row titles to name the columns and/or rows of data.

An easy way to assign a name is to select a cell or range and enter the name you want to

assign it in Excel’s “name box” on the formula bar.

A name cannot have two words and the same name cannot be used twice in the same workbook.

If you name cells or ranges after you’ve already used their values in formulas, you need

to explicitly tell Excel to use the names in the formulas. You can do this with the command

Formulas, Define Name, Apply Names or Insert, Name, Apply in 2003. Select the names you

want to use from the Apply Names

Using a Formula to Name a Range Dynamically

The section above (Naming Cells & Ranges Used in Formulas) describes the usual methods used

to create names in a worksheet. However, you can also make use of a special range-naming

option: Name a range by using a formula.

When might you want to do this? A common situation is this: You want to refer to a range whose

length may change over time. You don’t want to have to rename the range each time its length

changes. However, if you name the range using a dynamic formula, the formula will adjust when

the range length adjusts, and the name will always refer to the entire set of data.

Here’s how to accomplish this:

• Locate your list in some area of the worksheet. Below is a simple, three column list.

• The current list is in the range B5:D9.

• Without having selected the list, issue the commands Formulas, Define Name to

open the “Define Name” dialog. Supply a name for the range when prompted.


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• In the example above, I supplied the name MyRange.

• In the “Refers to” box, enter not the reference to the current range (B5:D9), but instead, a

formula that will dynamically define the range.

• The formula will take this format:

=OFFSET(Sheet1!$B$5, 0,0, COUNTA(Sheet1!$B:$B),3)

How the formula works:

The first argument of the OFFSET function is the anchor cell: In our example, B5. This cell should

be the upper-left-hand cell in the range, either a data cell or the first header cell if your list has

headers. Note that the sheet name is included in this reference and the reference to the anchor

cell is absolute.

The second argument indicates how many rows down to move from the offset cell to begin the

range. In our example, since 5 is the first row of the range, we move zero rows.

The third argument indicates how many columns to the right to move from the offset cell to

begin the range. In our example, since B is the first column of the range, we move zero columns.

The fourth argument tells how many rows belong in the range. Instead of providing a static value

here, use the COUNTA function. Supplying the COUNTA function with the reference $B:$B

indicates that it should count all the occupied rows in the B column. If more or fewer values are

included in the B column, COUNTA(Sheet1!$B:$B) will keep track of them. It’s important not to

have extraneous data beneath the dynamic range. Note also that the sheet name is included and

the column B reference is absolute.

The fifth and final argument tells how many columns to include in the range.


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Application

To ensure accuracy of formulas when formulas are copied across and down the

sheets

Notes:

A dynamic range name constructed in this way will appear in the list of worksheet range names

when you choose Formulas, Define Name. However it will not appear in the list of names in the

drop-down Name Box on the formula bar.

Because a dynamic named range is dependent on calculation, it can only be referenced in an

open workbook.

Copying formulas: relative and absolute addressing

You may often want to use the same formula in one or more places in a worksheet. It’s most

efficient to build the formula one time and then copy it to the other locations where you need it.

If you copy a formula, you must understand Excel’s relative and absolute addressing. For copied

formulas Excel uses relative addressing as the default. That is, Excel adjusts the cell references in

your source formula when the formula is copied to a new location.

Specify absolute addressing with a dollar sign (an arbitrarily selected symbol) before the row

reference and the column reference.

Relative: The row and column references can change when you copy the formula to

another cell because the references are actually offsets from the current row and

column.

Absolute: The row and column references do not change when you copy the formula

because the reference is to an actual cell address.

Mixed: Either the row or column reference is relative, and the other is absolute.

11

You can enter non-relative references (that is, absolute or mixed) manually by inserting dollar

signs in the appropriate positions of the cell address. Or you can use a handy shortcut: the F4


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Objectives

To understand how to protect formula cells and leave input cells editable

To understand how to assign permissions to users.

To understand workbook protection and its effects.

key. When you’ve entered a cell reference (by typing it or by pointing), you can press F4

repeatedly to have Excel cycle through all four reference types.

Worksheet Protection

• Excel users protect a worksheet for a variety of reasons. One reason is to prevent yourself or

others from accidentally deleting formulas or other critical data.

• A common scenario is to protect a worksheet so that the data can be changed, but the formulas

can’t be changed.

• To protect a worksheet, activate the worksheet and choose Review ➪ Changes ➪ Protect Sheet.

Excel displays the Protect Sheet dialog box

• Note that providing a password is optional. If you enter a password, that password will be

required to unprotect the worksheet. If you accept the default options in the Protect Sheet dialog

box, none of the cells on the worksheet can be modified.

FIGURE 31.1

Unlocking cells

• In many cases, you will want to allow some cells to be changed when the worksheet is protected.

For example, your worksheet may have some input cells that are used by formula cells. In such a

case, you would want the user to be able to change the input cells, but not the formula cells.

Every cell has a Locked attribute, and that attribute determines whether the cell can be changed

when the sheet is protected.

• By default, all cells are locked. To change the locked attribute, select the cell or range and then

use the

• Protection tab of the Format Cells dialog box To display this dialog box, right-click the cell or

range and choose Format Cells from the shortcut menu (or press Ctrl+1). Remove the check

mark from Locked and click OK.


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31

To unprotect a protected sheet, choose Review ➪ Changes ➪ Unprotect Sheet. If the sheet is

protected with a password, you’re prompted to enter the password.

Sheet protection options

The Protect Sheet dialog box has several options, which determine what the user can do when

the worksheet is protected.

• Select locked cells: If checked, the user can select locked cells using the mouse or the

keyboard. This setting is checked, by default.

• Select unlocked cells: If checked, the user can select unlocked cells using the mouse

or the keyboard. This setting is checked, by default.

• Format cells: If checked, the user can apply formatting to locked cells.

• Format columns: If checked, the user can hide or change the width of columns.

• Format rows: If checked, the user can hide or change the height of rows.

• Insert columns: If checked, the user can insert new columns.

• Insert rows: If checked, the user can insert new rows.

• Insert hyperlinks: If checked, the user can insert hyperlinks (even in locked cells).

• Delete columns: If checked, the user can delete columns.

• Delete rows: If checked, the user can delete rows.

• Sort: If checked, the user can sort data in a range (as long as the range doesn’t contain

any locked cells).

• Use AutoFilter: If checked, the user can use existing auto filtering.

• Use PivotTable reports: If checked, the user can change the layout of pivot tables or

create new pivot tables.

• Edit objects: If checked, the user can make changes to objects (such as Shapes) and

charts, as well as insert or delete comments.


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• Edit scenarios: If checked, the user can use scenarios (see Chapter 36).

Assigning User Permissions

Excel also offers the ability to assign user-level permissions to different areas on a protected

worksheet. You can specify which users can edit a particular range while the worksheet is

protected. As an option, you can require a password to make changes.

This feature is rarely used, and the setup procedure is rather complicated. But if you need this

level of protection, setting it up is worth the effort to get it.

Start by unprotecting the worksheet if it’s protected. Then choose Review ➪ Changes ➪ Allow

Users To Edit Ranges, which displays the dialog box shown in Figure 31.4. Then follow the

prompts in the series of dialog boxes that follow. Make sure that you protect the sheet as the

final step.

Protecting a workbook’s windows

To prevent others (or yourself) from changing the size or position of a workbook’s windows, you

can protect the workbook’s windows:

1. Choose Review ➪ Changes ➪ Protect Workbook.

2. In the Protect Workbook dialog box, place a check mark next to Windows.

3. Enter a password, if desired.

4. Click OK.

When a workbook’s windows are protected, the user can’t change anything related to the

window size or position. For example, if the workbook window is maximized when the windows

are protected, the user cannot unmaximize the window. The windows can, however, be zoomed.

To unprotect the workbook’s windows, choose Review ➪ Changes ➪ Unprotect Workbook. If the

workbook’s windows were protected with a password, you are prompted to enter the password.

FIGURE 31.9


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Application

Prevent invalid typing into particular cells, accidentally or intentionally.

To prevent entering of invalid input that will lead the model to producing ridiculous

results e.g. margin of 120% or decimals of human beings.

Circle in valid data if the data had already been entered into the spreadsheet

Present the user with a drop-down list containing a list of input choices

Objectives To understand some key techniques of summarizing data

To understand techniques of preventing invalid data from being entered in cells

To understand ways of accessing (filtering) data and consolidating different data sets.

DATA MANAGEMENT TOOLS

Validating data & producing drop-down lists

Go to Data\Data Tools\Data Validation\Data validation (2007) or;

Data\Validation in 2003

Validation can be performed on data in a cell according to the validation criteria shown in the box

below.


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One can also select the message that should be displayed if invalid data is entered, along with

the “error alert” symbol that should be displayed.

To prevent invalid data being entered into the spreadsheet:

1. Select the relevant cells on the spreadsheet

2. Open the Data validation dialogue box

3. Select the desired validation criteria

Types of Validation Criteria You Can Apply

Any Value: Selecting this option removes any existing data validation.

Whole Number: The user must enter a whole number. You specify a valid range of whole

numbers by using the Data drop-down list. For example, you can specify that the entry must be a

whole number greater than or equal to 100.

Decimal: The user must enter a number. You specify a valid range of numbers by using the

Data drop-down list. For example, you can specify that the entry must be greater than or equal

to 0 and less than or equal to 1.

List: The user must choose from a list of entries you provide.

Date: The user must enter a date. You specify a valid date range by using the Data drop-down

list. For example, you can specify that the entered data must be greater than or equal to January

1, 2007, and less than or equal to December 31, 2007.

Time: The user must enter a time. You specify a valid time range by using the Data drop-down

list. For example, you can specify that the entered data must be greater than 12:00 p.m.

Text Length: The length of the data (number of characters) is limited. You specify a valid

length by using the Data drop-down list. For example, you can specify that the length of the

entered data be 1 (a single alphanumeric character).


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Custom: To use this option, you must supply a logical formula that determines the validity of the

user’s entry (a logical formula returns either True or False). You can enter the formula directly

into the Formula control (which appears when you select the Custom option), or you can specify

a cell reference that contains a formula.

To present the user with a drop-down box containing a list of input choices for the

current cell:

1. In a column on the spreadsheet list the choices for the input cells concerned

2. Select the cells on the spreadsheet for which this list of choices is applicable

3. Open the Data validation dialogue box. In the “Allow” box, select “List”

4. In the “Source” box now presented, enter the column of choices, either in the form of cell

addresses or a range name (if you named the column of choices). Note that the range or name

should be preceded by an =. This creates what is termed an in-cell drop down list.

Encircle Invalid Data

The Data ➪ Data Tools ➪ Data Validation drop-down control contains an item named Circle

Invalid Data. When you click this item, circles appear around cells that contain incorrect entries.

If you correct an invalid entry, the circle disappears.

To get rid of the circles, choose Data ➪ Data Tools ➪ Data Validation ➪ Clear Validation Circles.

Using Formulas for Data Validation Rules

For simple data validation, the data validation feature is quite straightforward and easy to use.

But the real power of this feature becomes apparent when you use data validation formulas.

The formula that you specify must be a logical formula that returns either True or False.

If the formula evaluates to True, the data is considered valid and remains in the cell. If the

formula evaluates to False, a message box appears that displays the message specified in the

Error Alert tab of the Data Validation dialog box.

You can specify a formula in the Data Validation dialog box by selecting the Custom option in the

Allow drop-down list of the Settings tab. You can enter the formula directly into the Formula

control, or you can enter a reference to a cell that contains a formula.

If the formula that you enter into the Data Validation dialog box contains a cell reference, that

reference is considered a relative reference, based on the upper-left cell in the selected range.


39

Data Validation Examples

Example: Data validation examples.xlsx.

Accepting text only

Excel has a Data Validation option to limit the length of text entered into a cell.

To force a cell or range to accept only text (no values), use the following data validation formula:

=ISTEXT(A1)

This formula assumes that the active cell in the selected range is cell A1.

Accepting a larger value than the previous cell

The following data validation formula enables the user to enter a value only if it’s greater than

the value in the cell directly above it:

=A2>A1

This formula assumes that A2 is the active cell in the selected range. Note that you can’t use this

formula for a cell in row 1.

Accepting no duplicate entries only

The following data validation formula does not permit the user to make a duplicate entry in the

range A1:C20:

=COUNTIF($A$1:$C$20,A1)=1

This formula assumes that A1 is the active cell in the selected range. Note that the first argument

for COUNTIF is an absolute reference. The second argument is a relative reference, and it

adjusts for each cell in the validation range

Accepting only a date that’s a Monday

The following Data Validation formula ensures that the cell entry is a date, and the date is a

Monday.

=WEEKDAY(A1)=2

This formula assumes that the active cell in the selected range is cell A1. It uses the WEEKDAY

function, which returns 1 for Sunday, 2 for Monday, and so on.


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Application Understand how to filter data and drill down to select the data one wants to see.

Understand how to filter data using various dimensions either on the same place or

extracting the selection required.

Accepting only values that don’t exceed a total

The following Data Validation formula ensures that the sum of the budget items does not exceed

the budget:

=SUM($B$1:$B$6)<=$E$5

Filtering & Advanced Filtering

Searching a database in Excel is known as "Filtering".

Excel provides us with a means of filtering data "automatically" - called AutoFilter, or creating

filters (criteria) and storing results in a more permanent manner - called Advanced Filter.

To merely display required data (filter the database), choose the commands Data/Sort

& filter/Filter. This will cause arrow buttons to be displayed at the top of each column.

Click the arrow button in the column in which you want to search for data, and choose from the

selection list displayed.

To remove the AutoFilter arrows, again select the commands Data/Sort & Filter/Filter. (2003

– Data/Filter/Autofilter)

Advanced Filtering

The Advanced command works differently from the Filter command in several important ways.

It displays the Advanced Filter dialog box instead of the AutoFilter menu.

You type the advanced criteria in a separate criteria range on the worksheet and above the range

of cells or table you want to filter. Microsoft Office Excel uses the separate criteria range in the

Advanced Filter dialog box as the source for the advanced criteria.


41

To switch between viewing the results and viewing the formulas that return the results, press CTRL+`

(grave accent), or on the Formulas tab, in the Formula Auditing group, click the Show Formulas button.

1

2

3

4

5

6

7

8

9

10

A B C

Type Salesperson Sales

Type Salesperson Sales

Beverages Suyama $5122

Meat Davolio $450

produce Buchanan $6328

Produce Davolio $6544

Because the equal sign (=) is used to indicate a formula when you type text or a value in a cell,

Excel evaluates what you type; however, this may cause unexpected filter results. To indicate an

equality comparison operator for either text or a value, type the criteria as a string expression in

the appropriate cell in the criteria range:

=''=entry''

Where entry is the text or value you want to find. For example:

What you type in the cell What Excel evaluates and displays

="=Davolio" =Davolio

="=3000" =3000

Multiple criteria, one column, any criteria true


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Boolean logic: (Salesperson = "Davolio" OR Salesperson = "Buchanan")

Insert at least three blank rows above the list range that can be used as a criteria range. The

criteria range must have column labels. Make sure that there is at least one blank row between

the criteria values and the list range.

To find rows that meet multiple criteria for one column, type the criteria directly below each other in

separate rows of the criteria range. In the example, you would enter:

A B C

1 Type Salesperson Sales

2 ="=Davolio"

3 ="=Buchanan"

Click a cell in the list range. In the example, you would click any cell in the range, A6:C10.

On the Data tab, in the Sort & Filter group, click Advanced.

Do one of the following:

To filter the list range by hiding rows that don't match your criteria, click Filter the list, in-place.

To filter the list range by copying rows that match your criteria to another area of the worksheet,

click Copy to another location, click in the Copy to box, and then click the upper-left corner of the

area where you want to paste the rows.

Tip When you copy filtered rows to another location, you can specify which columns to include in

the copy operation. Before filtering, copy the column labels for the columns that you want to the

first row of the area where you plan to paste the filtered rows. When you filter, enter a reference

to the copied column labels in the Copy to box. The copied rows will then include only the

columns for which you copied the labels.


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Multiple criteria, multiple columns, all criteria true

Boolean logic: (Type = "Produce" AND Sales > 1000)

To find rows that meet multiple criteria in multiple columns, type all of the criteria in the same

row of the criteria range. In the example, you would enter:

A B C


2 ="=Produce" >1000

In the Criteria range box, enter the reference for the criteria range, including the criteria labels. In the

example, you would enter $A$1:$C$2.

Multiple criteria, multiple columns, any criteria true

Boolean logic: (Type = "Produce" OR Salesperson = "Buchanan")

To find rows that meet multiple criteria in multiple columns, where any criteria can be true, type the

criteria in the different columns and rows of the criteria range. In the example, you would enter:

A B C


2 ="=Produce"

3 ="=Buchanan"

Multiple sets of criteria, one column in all sets

Boolean logic: ( (Sales > 6000 AND Sales < 6500 ) OR (Sales < 500) )

To find rows that meet multiple sets of criteria, where each set includes criteria for one column, include

multiple columns with the same column heading. In the example, you would enter:

A B C D

1 Type Salesperson Sales Sales

2 >6000 <6500

3 <500


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Application Quickly summarize data by categories.

Drill down data to see the summary or the detail.

Multiple sets of criteria, multiple columns in each set

Boolean logic: ( (Salesperson = "Davolio" AND Sales >3000) OR (Salesperson = "Buchanan" AND Sales

> 1500) )

A B C


2 ="=Davolio" >3000

3 ="=Buchanan" >1500

Subtotal, Outline (Grouping & Ungrouping)

Like the other list management features in Excel, the Subtotal recognizes data in an Excel list

format and will operate on that list if you click on any cell in the list before getting started.

When you plan to use the Subtotal command, always first consider whether and how to use the

Sort command. Excel can’t effectively subtotal unsorted data.

Choose the commands Data, Outline Group, Subtotal to open the Subtotal dialog box.

The default subtotal function is sum. Other functions available include Count, Average, Max, Min,

Product, Count Nums, StdDev, StdDevp, Var, and Varp.

The dialog allows you to determine how the subtotal will be organized. Excel creates subtotals

and puts them in an outline format so they can be easily collapsed for a summary view.

Remove subtotals with Data, Outline Group, Subtotals, Remove All.


45

Application

Understand how to filter data and drill down to select the data one wants to see.

Understand how to filter data using various dimensions either on the same place or

extracting the selection required.

Outline

Excel provides a convenient outline feature that facilitates showing your data in summary or

detail fashion. The Outline view displays automatically after you use the Subtotal command. Or,

you can create an outline automatically (Data, Group and Outline, Auto Outline) or by hand.

To create an outline manually, select the data to outline and choose Data, Group and Outline,

Group.

Make sure you insert your own summary rows with formulas immediately below or above each group of

detail rows.

An outline can encompass up to eight levels of detail.

Remove outlining from the spreadsheet with Data, Group and Outline, Clear Outline.

Consolidate data in multiple worksheets

To summarize and report results from separate worksheets, you can consolidate data from each

separate worksheet into a master worksheet. The worksheets can be in the same workbook as

the master worksheet or in other workbooks. When you consolidate data, you are assembling

data so that you can more easily update and aggregate it on a regular or ad hoc basis.

For example, if you have a worksheet of expense figures for each of your regional offices, you

might use a consolidation to roll up these figures into a corporate expense worksheet. This

master worksheet might contain sales totals and averages, current inventory levels, and highest

selling products for the entire enterprise.

For data consolidation, use Excel’s Consolidate dialog box. This method is very flexible, and in

some cases, it even works if the source worksheets aren’t laid out identically.

This technique can create consolidations that are static (no link formulas) or dynamic (with link

formulas).

The Data Consolidate feature supports the following methods of consolidation:


46

• By position: This method is accurate only if the worksheets are laid out

identically.

• By category: Excel uses row and column labels to match data in the source

worksheets. Use this option if the data is laid out differently in the source

worksheets or if some source worksheets are missing rows or columns.

The picture below shows the Consolidate dialog box, which appears when you choose Data ➪

Data Tools ➪Consolidate. Following is a description of the controls in this dialog box:

FIGURE 27.6

The Consolidate dialog box enables you to specify ranges to consolidate.

Function list box: Specify the type of consolidation. Sum is the most commonly used

consolidation function, but you also can select from ten other options.

Reference text box: Specify a range from a source file that you want to consolidate. You can

enter the range reference manually or use any standard pointing technique (if the workbook is

open). After you enter the range in this box, click the Add button to add it to the All References

list. If you consolidate by position, don’t include labels in the range. If you consolidate by

category, do include labels in the range.

All References list box: Contains the list of references that you have added with the Add

button.


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Use Labels In check boxes: Use to instruct Excel to perform the consolidation by examining

the labels in the top row, the left column, or both positions. Use these options when you

consolidate by category.

Create Links to Source Data check box: When you select this option, Excel adds summary

formulas for each label and creates an outline. If you don’t select this option, the consolidation

doesn’t use formulas, and an outline isn’t created.

Browse button: Displays a dialog box that enables you to select a workbook to open. It inserts

the filename in the Reference box, but you have to supply the range reference. You’ll find that

your job is much easier if all the workbooks to be consolidated are open.

Add button: Adds the reference in the Reference box to the All References list. Make sure that

you click this button after you specify each range.

Delete button: Deletes the selected reference from the All References list.

To consolidate data, use the Consolidate command in the Data Tools group on the Data tab.

What do you want to do?

If you want to… Then…

Arrange the data in all worksheets in identical

order and location

Consolidate by position

Organize the data differently in the separate

worksheets, but use the same row and column

labels so that the master worksheet can match

the data

Consolidate by category

Use a PivotTable report instead of a consolidation Use a PivotTable report to consolidate data

Consolidate by position

1. Set up the data to be consolidated on each separate worksheet.

Make sure that each range of data is in list format: each column has a label in the first row

and contains similar facts, and there are no blank rows or columns within the list.


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Put each range on a separate worksheet. Don't put any of the ranges on the worksheet

where you plan to put the consolidation.

Make sure that each range has the same layout.

Name each range: Select the entire range, and then on the Formulas tab in the Named

Cells group, click the arrow next to Name a Range, and type a name for the range in the

Name box.

2. Click the upper-left cell of the area where you want the consolidated data to appear in the

master worksheet.

NOTE Make sure that you leave enough cells to the right and below this cell for the

consolidated data. The Consolidate command populates the area as needed.

3. On the Data tab, in the Data Tools group, click Consolidate.

4. In the Function box, click the summary function that you want Microsoft Office Excel to use to

consolidate the data.

5. If the worksheet is in another workbook, click Browse to locate the file, and then click OK to

close the Browse dialog box.

The file path is entered in the Reference box followed by an exclamation point.

6. Type the name that you gave the range, and then click Add. Repeat this step for each range.

7. Decide how you want to update the consolidation. Do one of the following:

To set up the consolidation so that it updates automatically when the source data changes,

select the Create links to source data check box.

IMPORTANT You can only select this check box if the worksheet is in another workbook.

Once you select this check box, you won't be able to change which cells and ranges are

included in the consolidation.


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To set up the consolidation so that you can update the consolidation manually by changing

the included cells and ranges, clear the Create links to source data check box.

8. Leave the boxes under Use labels in blank. Excel does not copy the row or column labels in the

source ranges to the consolidation. If you want labels for the consolidated data, copy them from

one of the source ranges or enter them manually.

Consolidate by category

Select the check boxes under Use labels in that indicate where the labels are located in the

source ranges: either the Top row, the Left column, or both.

NOTES

Any labels that don't match up with labels in the other source areas result in separate rows

or columns in the consolidation.

Make sure that any categories that you don't want to consolidate have unique labels that

appear in only one source range.

An example

The simple example in this section demonstrates the power of Excel’s Data Consolidate feature.

shows three single-sheet workbooks that will be consolidated.

These worksheets report product sales for three months. Notice, however, that they don’t all

report on the same products. In addition, the products aren’t even listed in the same order. In

other words, these worksheets aren’t laid out identically. Creating consolidation formulas

manually would be a very tedious task.

Use workbooks The files are named region1.xlsx, region2.xlsx, and region3.xlsx.

To consolidate this information, start with a new workbook. You don’t need to open the source

workbooks, but consolidation is easier if they are open. Follow these steps to consolidate the

workbooks:

Choose Data ➪ Data Tools ➪ Consolidate. Excel displays its Consolidate dialog box.

Use the Function drop-down list to select the type of consolidation summary that you

want to use. Use Sum for this example.


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Application

Understand how to trace errors, check cell dependents and precedents.

Understand how to display formulas on screen instead of their cell results

Enter the reference for the first worksheet to consolidate. If the workbook is open, you

can point to the reference. If it’s not open, click the Browse button to locate the file on disk. The

reference must include a range. You can use a range that includes complete columns, such as

A:K. This range is larger than the actual range to consolidate, but using this range ensures that

the consolidation will still work if new rows and columns are added to the source file. When the

reference in the Reference box is correct, click Add to add it to the All References list.

Enter the reference for the second worksheet. You can point to the range in the Region2

workbook, or you can simply edit the existing reference by changing Region1 to Region2 and

then clicking Add. This reference is added to the All References list.

Enter the reference for the third worksheet. Again, you can edit the existing reference by

changing Region2 to Region3 and then clicking Add. This final reference is added to the All

References list.

Because the worksheets aren’t laid out the same, select the Left column and Top row

check boxes to force Excel to match the data by using the labels.

Select the Create Links to Source Data check box to make Excel create an outline

with external references.

Click OK to begin the consolidation.

Refreshing a consolidation

If you want to refresh a consolidation later, you don’t have to re-enter the references.

Just display the Consolidate dialog box, verify that the ranges are correct, and click OK.

Formula Auditing


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Application

Understand how to dynamically format cells to reveal information hidden in numbers.

Understand how to improve the appearance of your model through fine visual effects.

You can locate the cells that supply data for formulas and find cells that depend on values in other cells

by using the Auditing Group on the Formulas Tab

Use Excel's Auditor to Correct Problems and Examine Cell Relationships

For example, a circular reference occurs when a formula mistakenly refers to itself and thus can't

be resolved. Click the problem cell and use the Trace Error button on the Auditing Toolbar to

locate the error.

Click the cell whose dependents or precedents you want to locate and use the trace precedents

or trace dependents icons on the Auditing Group. Excel draws arrows on the worksheet to show

relationships between cells. Use the Remove Arrows icon or the erase dependent arrows icons to

erase the arrows when you're through.

Creating conditional formats in Excel 2007

Conditional formatting works a little differently in Excel 2007, and quite a few enhancements

have been made.

The Conditional formatting command sequence is: Home/Styles/Conditional formatting

This will bring up the following dialogue box


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• And selecting the first item on the menu will expand the dialogue box to:

• And again selecting the first item “Greater than…” will bring up the dialogue box allowing you to

format the cell according to its contents.

• To format a cell according to a formula, one would select the “More rules…”. option on the

previous page. The following dialogue box will appear


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Creating conditional formats in Excel 2007 (contd)

Thus in Excel 2007, a desired format can be applied to cells if:

• A cell meets certain specified criteria (e.g. is greater than, less than, equal to, falls between

certain values, contains a string of text, occurs between two dates)

• Values in a range are duplicated (or are unique)

• Values fall within the top x number of values or the bottom x number of values, or are above, or

below, the average.

• Cells can be highlighted according to their values (called data bars) or can be flagged with icons

depending on where their values fall.


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Objectives

Understand various Excel functions and learn how to apply them in different

modeling scenarios.

EXCEL FUNCTIONS

Formula Basics

Formulas are what make a spreadsheet program so useful.

You use formulas in your Excel worksheets to calculate results from the data stored in the

worksheet.

When data changes, those formulas calculate updated results with no extra effort on your part.

We introduce formulas and functions that will help you get up to speed with this important

element.

Understanding Formula Basics

A formula can consist of any of these elements:

• Mathematical operators, such as + (for addition) and * (for multiplication)

• Cell references (including named cells and ranges)

• Values or text

• Worksheet functions (such as SUM or AVERAGE)

• Formulas always begin with the equal sign so that Excel can distinguish them from text.

Using operators in formulas

Operators Used in Formulas

Operator Name

+ Addition

– Subtraction

* Multiplication

/ Division


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^ Exponentiation

& Concatenation

= Logical comparison (equal to)

> Logical comparison (greater than)

< Logical comparison (less than)

>= Logical comparison (greater than or equal to)

<= Logical comparison (less than or equal to)

<> Logical comparison (not equal to)

You can, of course, use as many operators as you need to perform the desired calculation.

Following are some examples of formulas that use various operators.

Formula What It Does

=”Part-”&”23A” Joins (concatenates) the two text strings to produce Part-23A.

=A1&A2 Concatenates the contents of cell A1 with cell A2. Concatenation works with values as

well as text. If cell A1 contains 123 and cell A2 contains 456, this formula would return

the value 123456.

=6^3 Raises 6 to the third power (216).

=216^(1/3) Returns the cube root of 216 (6).

=A1<A2 Returns TRUE if the value in cell A1 is less than the value in cell A2.

Otherwise, it returns FALSE. Logical-comparison operators also work with text. If A1

contained Bill and A2 contained Julia, the formula would return TRUE, because Bill comes

before Julia in alphabetical order.

=A1<=A2 Returns TRUE if the value in cell A1 is less than or equal to the value in cell A2.

Otherwise, it returns FALSE.

=A1<>A2 Returns TRUE if the value in cell A1 isn’t equal to the value in cell A2. Otherwise, it

returns FALSE

Understanding operator precedence in formulas

When Excel calculates the value of a formula, it uses certain rules to determine the order in

which the various parts of the formula are calculated.

You need to understand these rules if you want your formulas to produce the desired results.


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The table below lists the Excel operator precedence. This table shows that exponentiation has

the highest precedence (it’s performed first) and logical comparisons have the lowest precedence

(they’re performed last).

Operator Precedence in Excel Formulas

Symbol Operator Precedence

^ Exponentiation 1

* Multiplication 2

/ Division 2

+ Addition 3

– Subtraction 3

& Concatenation 4

= Equal to 5

< Less than 5

> Greater than 5

You can use parentheses to override the Excel’s built-in order of precedence. Expressions within

parentheses are always evaluated first. E.g.

=(B2-B3)*B4

Compare with the following formula without parentheses:

=B2-B3*B4

You can also nest parentheses within formulas—that is, put them inside other parentheses. If you

do so, Excel evaluates the most deeply nested expressions first—and then works its way out.

Here’s an example of a formula that uses nested parentheses:

=((B2*C2)+(B3*C3)+(B4*C4))*B6

Every left parenthesis, of course, must have a matching right parenthesis. If you have many

levels of nested parentheses, keeping them straight can sometimes be difficult. If the

parentheses don’t match, Excel displays a message explaining the problem—and won’t let you

enter the formula.

In some cases, if your formula contains mismatched parentheses, Excel may propose a correction

to your formula.


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Excel’s Formula AutoCorrect feature often suggests a correction to an erroneous formula.

Using functions in your formulas

Most formulas you create use worksheet functions. These functions enable you to greatly

enhance the power of your formulas and perform calculations that are difficult (or even

impossible) if you use only the operators discussed previously. For example, you can use the TAN

function to calculate the tangent of an angle. You can’t do this calculation by using only the

mathematical operators.

Examples of formulas that use functions

A worksheet function can simplify a formula significantly. To calculate the average of the values

in 10 cells (A1:A10) without using a function, you’d have to construct a formula like this:

=(A1+A2+A3+A4+A5+A6+A7+A8+A9+A10)/10

Not very pretty, is it? Even worse, you would need to edit this formula if you added another cell

to the range. Fortunately, you can replace this formula with a much simpler one that uses one of

Excel’s built-in worksheet functions:

=AVERAGE(A1:A10)

Syntax of Excel functions

All the functions used parentheses.

A formula must begin with an equal sign to inform Excel that the cell contains a formula rather

than text.

A comma as a list-separator character

The information inside the parentheses is called the list of arguments. Functions vary in how they

use arguments. Depending on what it has to do, a function may use:

• No arguments


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• One argument

• A fixed number of arguments

• An indeterminate number of arguments

• Optional arguments

An example of a function that doesn’t use an argument is the NOW function, which returns the

current date and time. Even if a function doesn’t use an argument, you must still provide a set of

empty parentheses, like this:

=NOW()

More about functions

All told, Excel includes 340 functions. And if that’s not enough, you can purchase additional

specialized functions from third-party suppliers—and even create your own custom functions (by

using VBA) if you’re so inclined. Some users feel a bit overwhelmed by the sheer number of

functions, but you’ll probably find that you use only a dozen or so, on a regular basis. And as

you’ll see, Excel’s Insert Function dialog box (described later in this section) makes it easy to

locate and insert a function, even if it’s not one that you use frequently.

You can insert a function by selecting it from one of the function categories.

The Function Arguments dialog box.


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Yet another way to insert a function while you’re entering a formula is to use the Function List to

the left of the Formula bar

Common Formula Errors

TABLE 11.3

Excel Error Values

Error Value Explanation

#DIV/0! The formula is trying to divide by zero. This also occurs when the formula attempts to

divide by what’s in a cell that is empty (that is, by nothing).

#NAME? The formula uses a name that Excel doesn’t recognize. This can happen if you delete a

name that’s used in the formula or if you have unmatched quotes when using text.

#N/A The formula is referring (directly or indirectly) to a cell that uses the NA function to

signal that data is not available. Some functions (for example, VLOOKUP) can also return

#N/A.

#NULL! The formula uses an intersection of two ranges that don’t intersect. (This concept is

described later in the chapter.)

#NUM! A problem with a value exists; for example, you specified a negative number where a

positive number is expected.

#REF! The formula refers to a cell that isn’t valid. This can happen if the cell has been deleted

from the worksheet.

#VALUE! The formula includes an argument or operand of the wrong type. An operand is a value

or cell reference that a formula uses to calculate a result


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Intentional Circular References

You can sometimes use a circular reference to your advantage. For example, suppose a company

has a policy of contributing 5 percent of its net profit to charity. The contribution itself, however,

is considered an expense—and is therefore subtracted from the net profit figure. This produces a

circular reference (see the accompanying figure).

The Contributions cell contains the following formula:

=5%*Net_Profit

The Net Profit cell contains the following formula:

=Gross_Income-Expenses-Contributions

These formulas produce a resolvable circular reference. If the Enable Iterative Calculation setting

is on, Excel keeps calculating until the Contributions value is, indeed, 5 percent of Net Profit. In

other words, the result becomes increasingly accurate until it converges on the final solution.

Specifying when formulas are calculated

You’ve probably noticed that Excel calculates the formulas in your worksheet immediately. If you

change any cells that the formula uses, Excel displays the formula’s new result with no effort on

your part. All this happens when Excel’s Calculation mode is set to Automatic. In Automatic

Calculation mode (which is the default mode),

Sometimes, however, you may want to control when Excel calculates formulas. For example, if

you create a worksheet with thousands of complex formulas, you’ll find that processing can slow

to a snail’s pace while

Excel does its thing. In such a case, set Excel’s calculation mode to Manual—which you can do by

choosing Formulas ➪ Calculation ➪ Calculation Options ➪ Manual


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You can control when Excel calculates formulas.

Logical Functions

The IF function

It is often necessary in financial modelling to use logical tests in a model. i.e. a statement that

reads:

If this condition is true, then use this formula, else use that formula.

E.g. If sales are greater than target of 10 000, then calculate commission at 10% of the sales,

else just pay the minimum commission of 1000.

In most modelling systems this is known as an If, Then, Else statement.

Excel’s IF function is probably the most important of the set of Excel’s logical functions. Excel’s

other logical functions are AND, NOT, OR, FALSE and TRUE.

The IF function checks a condition that must be either true or false. If the condition is true, the

function returns one value; if the condition is false, the function returns another value.

The IF function has three arguments: the condition you want to check, the value to return if the

condition is true, and the value to return if the condition is false.

The syntax of the IF statement is:

=IF(logical_test,value_if_true,value_if_false)

Here are some examples of logical statements in a spreadsheet system:

=If(C6>=10000,C6*10%,1000)

=If(B10<0,"Overdraft","Cash")

=If(B1<>B2,"Out of balance!","")

Nested Ifs

Ifs can also be nested. For example you might have an IF statement that reads “IF(this

condition is true, THEN take D1*D10, ELSE IF this condition is true, THEN take D1*D11,

ELSE IF this condition is true, THEN take D1*D12, ELSE take 0)

For example:


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Application

To manipulate the model more easily and flexibly

To prevent manual typing of assumptions or model variations

To control invalid input into the model

IF(Score>89,"A", IF(Score>79,"B", IF(Score>69,"C", IF(Score>59,"D", "F"))))

Up to seven IF functions can be nested as value_if_true and value_if_false arguments to

construct more elaborate tests. However, a statement with more than one or two embedded IF

functions

is hard to read and may be unnecessarily complicated.

The AND Function

The AND function can handle up to thirty conditions that can evaluate to true or false. This

function requires that all its arguments evaluate as true in order for AND to evaluate to True. For

example, the formula =AND(1<5,10>2) evaluates to True. But the formula =AND(1<5,12<2)

evaluates to False.

The OR Function

Like the AND function, the OR function can handle up to thirty conditions. However, the OR

function requires that only one of the arguments evaluate as true in order to return true. So

=OR(1<5,12<2) evaluates to True.

The NOT Function

The NOT function changes a TRUE outcome to a FALSE one and vice versa. For example,

=NOT(12>2) returns False.

Excel has additional functions you can use to analyze your data based on a condition. For

example, to count the number of occurrences of a string of text or a number within a range of

cells, use the COUNTIF worksheet function. To calculate a sum based on a string of text or a

number within a range, use the SUMIF worksheet function.

Worksheet Controls


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Introduction

You can build a custom form for a worksheet by using Excel controls. Buttons, check boxes,

drop-down lists, spinners, and other kinds of controls can make a worksheet easier for you and

others to use.

There are two categories of Excel controls you can choose from, and there’s a close

correspondence between the two. Controls on the Forms toolbar are something of a holdover

from earlier versions of Excel. These controls don’t require any special programming or definition

other than what can be provided from within Excel itself.

Use a control from the Forms toolbar when you need a control to run a single macro or for a

simple interactive worksheet. In contrast, controls from the Control Toolbox are more

sophisticated. They’re closely linked to Excel’s Visual Basic for Applications (VBA) environment

and require that you write code to manage how the control works.

To bring the Forms toolbox to the Excel ribbon, go to Excel Options, under Customize, All

commands, select “Controls”, click Add and then OK.

Once you add the control toolbox, it will now be accessible on the Quick access toolbar


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Using Forms Toolbar Controls

All the control buttons on the Forms toolbar work using the same two-part process:

1) Draw the control on the worksheet, and

2) Format the control.

3) Link a control to a cell

Formatting a control determines what data is associated with the control. In addition, formatting

can change a control’s protection status, how it moves when underlying cells are moved, and

what its data entry limits might be.

Formatting a control is achieved by right clicking the control and then selecting “format control”

and then the “Control” tab.

The Check Box

Used to collect True/False responses. The check box control is linked to a cell. The result of the

check box status appears as TRUE or FALSE in the linked cell. The user’s selection of the check

box results in TRUE; de-selection results in FALSE. For example, in a budget model, you could

have a button for “Consider recruitment” or “Suspend recruitment”.

This control is often used with an IF function that examines the TRUE or FALSE status of the

linked cell.

For example,

=if(LinkCell,TrueResult,FalseResult)


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Option Button

Used most often to make a single choice from a group of options. E.g., selecting a depreciation

method to use.

If you draw several option buttons on a worksheet, all these buttons will belong to the same

group, so the user will be able to select only one button at a time.

However, you can enclose a group of buttons in a group box (drawn with the group tool) and

these buttons will function separately from any outside the group box or any other group box.

The Group Box

The result from a group of option buttons appears in one, linked cell.

To create a group of option buttons draw a group box with the group box tool. While the box is

selected, type a title to replace the default box title.

Because only one linked cell exists for all option buttons in a group, if the first button is selected,

the linked cell holds 1. If the second button is selected, the linked cell holds 2, and so on.

The CHOOSE function can be used to turn the numeric choice into different results. For example:

=choose(LinkCell,Result1,Result2,Result3...)

The List or Combo Box

A list box and a combo (drop-down) box produce the same result, but they look different to the

user. A list box shows multiple items in a list while the list itself stays the same height. A combo

box (drop-down or pull-down list) is only one item high and has a down-arrow at the right.

Clicking the arrow displays the list.

To create list box or a combo box:


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1. After drawing the control, on the workings worksheet, enter a column with the items you want to

appear in the list. Enter one item per cell.

2. Right click the list and choose Format Control to display the “Format Control” tabbed dialog.

Select the Control tab.

3. Select the Input Range box and drag across the range in the worksheet that contains the list.

This is the list that will appear in the list box or combo box.

4. Select the Cell Link box and click the cell that will receive the results of the list.

5. If you’re formatting a combo box, enter in the Drop down Lines box the number of lines that

should display when the list appears.

Displaying the selection

The result of a selection from a list is the number that’s the position of the selected item in the

list. If a user selected the second item in the list, for example, the linked cell holds 2. If you want

to convert this number into an actual item in the list, use the CHOOSE function described earlier,

or use the INDEX function.

The syntax of the index function is:

=index(ItemList,LinkCell,ColumnNo)

In our example, assume that a list of items in the range B3:B7 is used for the range in the Input

Range box. The link cells for the list is C9 & E9. This cell is where the numeric position of the

item the user selects will appear. In another cell you can show the item selected with the

formulae:

=index($B$3:$B$7,$E$9,1) =index($B$3:$C$7,$G$9,2)

This function looks down the list B3:B7 to the row specified in C9. The item in that row of the list

(1) is then returned to the cell that contains the index function.

Two-list lookup

You can display details in another column by choosing from one list but use a corresponding

value from another list. You could use this technique to look up items by name or description etc

e.g. in our example in the list box we are selecting the day in order to pick the corresponding %


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To use a two-list lookup, you need two lists. One is used as the Input Range for the control, and

it’s the list the user sees. The other is used to find the result you want to retrieve and have

appeared in the worksheet. Notice the formula on top.

The Spinner

A spinner increases or decreases the amount in the cell linked to it. Holding down the mouse

button on a spinner makes it change continuously. Note that using a spinner can cause a great

deal of recalculation in a worksheet unless you control worksheet recalculation deliberately.

To set the defaults and limits on a spinner control:

1. Right-click the spinner control and choose the Format Control command.

2. On the “Format Control” tabbed dialog, select the “Control” tab.

3. In the Current Value box, enter the amount you want the linked cell to have by default

when the worksheet opens.

4. In the Minimum Value box, enter the lowest value you want the spinner to produce. In

the Maximum Value box, enter the highest. Set the amount of change for each click to

the spinner in the Incremental Change box. (The Page Change box isn’t used for spinner

control.)

5. Select the Cell Link box and click the cell in the worksheet that you want to receive the

spinner result.

The Scroll Bar

A scroll bar, or slider, lets a user select from a wide range of numbers while getting a visual

impression of where their entry lies within the possibilities.

The scroll bar can be drawn to operate vertically or horizontally.

To enter a number, the user clicks the top or bottom arrow for incremental change or the grey

part of the bar for a “page” amount of change. Or, the user can drag the square button in the

scroll bar.

Like a spinner, a scroll bar can cause a great deal of recalculation in a worksheet unless you

control worksheet recalculation deliberately. To set scroll bar defaults:

The Command Button


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The Command Button works with macros hence will be deferred until the topic on Macros.

LookUp Functions

Excel has three functions (LOOKUP, VLOOKUP, and HLOOKUP) designed for this task.

A lookup formula essentially returns a value from a table by looking up another related value. A

common telephone directory provides a good analogy. If you want to find a person’s telephone

number, you first locate the name (look it up) and then retrieve the corresponding number.

D2 =VLOOKUP(C2,EmpData,2,FALSE)

E2 =VLOOKUP(C2,EmpData,3,FALSE)

F2 =VLOOKUP(C2,EmpData,4,FALSE)

G2 =VLOOKUP(C2,EmpData,5,FALSE)

Lookup formulas in row 2 look up the information for the employee name in cell C2.

Functions Relevant to Lookups

Several Excel functions are useful when writing formulas to look up information in a table. Table 15.1 lists

and describes these functions.


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Basic Lookup Formulas

You can use the Excel basic lookup functions to search a column or row for a lookup value to return

another value as a result. Excel provides three basic lookup functions: HLOOKUP, VLOOKUP, and

LOOKUP.

In addition, the MATCH and INDEX functions are often used together to return a cell or relative cell

reference for a lookup value.

The VLOOKUP function

The VLOOKUP function looks up the value in the first column of the lookup table and returns the

corresponding value in a specified table column. The lookup table is arranged vertically (which explains

the V in the function’s name). The syntax for the VLOOKUP function is

VLOOKUP(lookup_value,table_array,col_index_num,range_lookup)

The VLOOKUP function’s arguments are as follows:

lookup_value: The value to be looked up in the first column of the lookup table.

table_array: The range that contains the lookup table.

col_index_num : The column number within the table from which the matching value is

returned.

range_lookup: Optional. If TRUE or omitted, an approximate match is returned. (If an exact

match is not found, the next largest value that is less than lookup_value is returned.) If FALSE,

VLOOKUP will search for an exact match. If VLOOKUP can’t find an exact match, the function

returns #N/A.

NOTE: If the range_lookup argument is TRUE or omitted, the first column of the lookup table

must be in ascending order.

A very common use for a lookup formula involves an income tax rate schedule. The tax rate schedule

shows the income tax rates for various income levels. The following formula (in cell B3) returns the tax

rate for the income in cell B2:

=VLOOKUP(B2,D2:F7,3)

Note that an exact match is not required. If an exact match is not found in the first column of the lookup

table, the VLOOKUP function uses the next largest value that is less than the lookup value. In other

words, the function uses the row in which the value you want to look up is greater than or equal to the


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row value but less than the value in the next row. In the case of a tax table, this is exactly what you

want to happen.

The HLOOKUP function

The HLOOKUP function works just like the VLOOKUP function except that the lookup table is arranged

horizontally instead of vertically. The HLOOKUP function looks up the value in the first row of the lookup

table and returns the corresponding value in a specified table row.

The syntax for the HLOOKUP function is

HLOOKUP(lookup_value,table_array,row_index_num,range_lookup)

The HLOOKUP function’s arguments are as follows

lookup_value: The value to be looked up in the first row of the lookup table.

table_array: The range that contains the lookup table.

row_index_num: The row number within the table from which the matching value is returned.

range_lookup: Optional. If TRUE or omitted, an approximate match is returned. (If an exact

match is not found, the next largest value less than lookup_value is returned.) If FALSE,

VLOOKUP will search for an exact match. If VLOOKUP can’t find an exact match, the function

returns #N/A.

The formula in cell B3 is

=HLOOKUP(B2,E1:J3,3)

The LOOKUP function

The LOOKUP function has the following syntax:

LOOKUP(lookup_value,lookup_vector,result_vector)

The function’s arguments are as follows:

lookup_value: The value to be looked up in the lookup_vector.

lookup_vector: A single-column or single-row range that contains the values to be looked up.

These values must be in ascending order.


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result_vector: The single-column or single-row range that contains the values to be returned. It

must be the same size as the lookup_vector.

The LOOKUP function looks in a one-row or one-column range (lookup_vector) for a value (lookup_value)

and returns a value from the same position in a second one-row or one-column range (result_vector).

CAUTION: Values in the lookup_vector must be in ascending order. If lookup_value is

smaller than the smallest value in lookup_vector, LOOKUP returns #N/A.

Specialized Lookup Formulas

Looking up an exact value

As demonstrated in the previous examples, VLOOKUP and HLOOKUP don’t necessarily require an exact

match between the value to be looked up and the values in the lookup table. An example is looking up a

tax rate in a tax table. In some cases, you may require a perfect match. For example, when looking up

an employee number, you would probably require a perfect match for the number.

Counting and Summing Worksheet Cells

Generally, a counting formula returns the number of cells in a specified range that meet certain

criteria. A summing formula returns the sum of the values of the cells in a range that meet

certain criteria.

Selected Excel’s Counting and Summing Functions

Function Description

COUNT Returns the number of cells that contain a numeric value

COUNTA Returns the number of nonblank cells

COUNTBLANK Returns the number of blank cells

COUNTIF Returns the number of cells that meet a specified criterion

COUNTIFS* Returns the number of cells that meet multiple criteria

SUM Returns the sum of its arguments

SUMIF Returns the sum of cells that meet a specified criterion

SUMIFS* Returns the sum of cells that meet multiple criteria

* These are new functions, available only in Excel 2007.


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Counting the total number of cells

To get a count of the total number of cells in a range (empty and non-empty cells), use the

following formula. This formula returns the number of cells in a range named Data. It simply

multiplies the number of rows (returned by the ROWS function) by the number of columns

(returned by the COLUMNS function).

=ROWS(Data)*COLUMNS(Data)

Counting blank cells

The following formula returns the number of blank (empty) cells in a range named Data:

=COUNTBLANK(Data)

The COUNTBLANK function also counts cells containing a formula that returns an empty string.

For example, the formula that follows returns an empty string if the value in cell A1 is greater

than 5. If the cell meets this condition, the COUNTBLANK function counts that cell.

=IF(A1>5,””,A1)

You can use the COUNTBLANK function with an argument that consists of entire rows or

columns. For example, this next formula returns the number of blank cells in column A:

=COUNTBLANK(A:A)

The following formula returns the number of empty cells on the entire worksheet named Sheet1.

You must enter this formula on a sheet other than Sheet1, or it will create a circular reference.

=COUNTBLANK(Sheet1!1:1048576)

Counting nonblank cells

To count nonblank cells, use the COUNTA function. The following formula uses the COUNTA

function to return the number of nonblank cells in a range named Data:

=COUNTA(Data)

The COUNTA function counts cells that contain values, text, or logical values (TRUE or FALSE).


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NOTE: If a cell contains a formula that returns an empty string, that cell is included in

the count returned by COUNTA, even though the cell appears to be blank.

Counting numeric cells

To count only the numeric cells in a range, use the following formula (which assumes the range

is named Data):

=COUNT(Data)

Cells that contain a date or a time are considered to be numeric cells. Cells that contain a logical

value (TRUE or FALSE) aren’t considered to be numeric cells.

Advanced Counting Formulas

Most of the basic examples presented above use functions or formulas that perform conditional

counting. The advanced counting formulas that we present here represent more complex

examples for counting worksheet cells, based on various types of criteria.

Counting cells by using the COUNTIF function

Excel’s COUNTIF function is useful for single-criterion counting formulas. The COUNTIF function

takes two arguments:

• range: The range that contains the values that determine whether to include a particular

cell in the count

• criteria: The logical criteria that determine whether to include a particular cell in the

count

Examples of Formulas Using the COUNTIF Function

=COUNTIF(Data,12) Returns the number of cells containing the value 12

=COUNTIF(Data,”<0”) Returns the number of cells containing a negative

value

=COUNTIF(Data,”<>0”) Returns the number of cells not equal to 0

=COUNTIF(Data,”>5”) Returns the number of cells greater than 5

=COUNTIF(Data,A1) Returns the number of cells equal to the contents of

cell A1

=COUNTIF(Data,”>”&A1) Returns the number of cells greater than the value in


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cell A1

=COUNTIF(Data,”*”) Returns the number of cells containing text

=COUNTIF(Data,”???”) Returns the number of text cells containing exactly

three characters

=COUNTIF(Data,”budget”) Returns the number of cells containing the single

word budget (not case sensitive)

=COUNTIF(Data,”*budget*”) Returns the number of cells containing the text

budget anywhere within the text

=COUNTIF(Data,”A*”) Returns the number of cells containing text that

begins with the letter A (not case sensitive):

=COUNTIF(Data,TODAY()) Returns the number of cells containing the current

date

=COUNTIF(Data,”>”&AVERAGE(Data)) Returns the number of cells with a value greater

than the average

=COUNTIF(Data,3)+COUNTIF(Data,-3) Returns the number of cells containing the value 3 or

–3

=COUNTIF(Data,TRUE) Returns the number of cells containing logical TRUE

=COUNTIF(Data,”#N/A”) Returns the number of cells containing the #N/A

error value

Counting cells by using multiple criteria

In many cases, your counting formula will need to count cells only if two or more criteria are

met.

For example, you may want to count cells that contain a value greater than 100 and less than or

equal to 200. For this example, the new COUNTIFS function will do the job:

=COUNTIFS(Amount,”>100”,Amount,”<=200”)

The first member of the pair is the range to be counted (in this case, the range named Amount);

the second member of the pair is the criterion.

Counting the most frequently occurring entry

The MODE function returns the most frequently occurring value in a range.

=MODE(Data)


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The MODE function returns the most frequently occurring value in a range.

To count the number of times the most frequently occurring value appears in the range (in other

words, the frequency of the mode), use the following formula:

=COUNTIF(Data,MODE(Data))

Summing Formulas

The examples in this section demonstrate how to perform common summing tasks by using

formulas. The formulas range from very simple to relatively complex array formulas that compute

sums by using multiple criteria.

Summing all cells in a range

It doesn’t get much simpler than this. The following formula returns the sum of all values in a

range named Data:

=SUM(Data)

The SUM function can take up to 255 arguments. The following formula, for example, returns the

sum of the values in five noncontiguous ranges:

=SUM(A1:A9,C1:C9,E1:E9,G1:G9,I1:I9)

You can use complete rows or columns as an argument for the SUM function. The formula that

follows, for example, returns the sum of all values in column A.


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=SUM(A:A)

Computing a cumulative sum

You may want to display a cumulative sum of values in a range—sometimes known as a “running total.”

=SUM(B$2:B2)

Conditional Sums Using a Single Criterion

Often, you need to calculate a conditional sum. With a conditional sum, values in a range that

meet one or more conditions are included in the sum. This section presents examples of

conditional summing by using a single criterion.

The SUMIF function is very useful for single-criterion sum formulas. The SUMIF function takes

three arguments:

• Range: The range containing the values that determine whether to include a particular

cell in the sum.

• Criteria: An expression that determines whether to include a particular cell in the sum.

• sum_range: Optional. The range that contains the cells you want to sum. If you omit

this argument, the function uses the range specified in the first argument.

Summing only negative values

The following formula returns the sum of the negative values in column F. In other words, it returns the

total number of past-due days for all invoices. For this worksheet, the formula returns –63.

=SUMIF(Difference,”<0”)

Because you omit the third argument, the second argument (“<0”) applies to the values in the

Difference range.

You don’t need to hard-code the arguments for the SUMIF function into your formula. For

example, you can create a formula, such as the following, which gets the criteria argument from

the contents of cell G2:

=SUMIF(Difference,G2)

This formula returns a new result if you change the criteria in cell G2.


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Summing values based on a different range

The following formula returns the sum of the past-due invoice amounts (in column C):

=SUMIF(Difference,”<0”,Amount)

This formula uses the values in the Difference range to determine if the corresponding values in the

Amount range contribute to the sum.

Summing values based on a text comparison

The following formula returns the total invoice amounts for the Oregon office:

=SUMIF(Office,”=Oregon”,Amount)

Conditional Sums Using Multiple Criteria

The examples in the preceding section all used a single comparison criterion. The examples in this section

involve summing cells based on multiple criteria.

=SUMIFS(Amount,Difference,”<0”,Office,”Oregon”)

Text Functions

Text Functions

Excel has an excellent assortment of worksheet functions that can handle text. You can access these

functions just where you’d expect: from the Text control in the Function Library group of the Formula

tab.

Determining whether a cell contains text

In some situations, you may need a formula that determines the type of data contained in a particular

cell. For example, you may use an IF function to return a result only if a cell contains text. The easiest

way to make this determination is to use the ISTEXT function.


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The ISTEXT function takes a single argument and returns TRUE if the argument contains text and FALSE

if it doesn’t contain text. The formula that follows returns TRUE if A1 contains a string:

=ISTEXT(A1)

Joining two or more cells

Excel uses an ampersand (&) as its concatenation operator. Concatenation is simply a fancy term that

describes what happens when you join the contents of two or more cells. For example, if cell A1 contains

the text Tucson and cell A2 contains the text Arizona, the following formula will return TucsonArizona:

=A1&A2

NOTE: Excel also has a CONCATENATE function, which takes up to 255 arguments. For

example:

=CONCATENATE(A1,B1,C1,D1)

Changing the case of text

Excel provides three handy functions to change the case of text:

UPPER converts the text to ALL UPPERCASE.

LOWER converts the text to all lowercase.

PROPER converts the text to Proper Case (the first letter in each word is capitalized, as in a

proper name).

These functions are quite straightforward. The formula that follows, for example, converts the text in cell

A1 to proper case.

=PROPER(A1)

Time and Date Functions

Date-Related Functions

Excel has quite a few functions that work with dates. These functions are accessible by choosing

Formulas ➪ Function Library ➪ Date & Time.


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The Table below summarizes the date-related functions available in Excel.

Selected Date-Related Functions

Function Description

MONTH Converts a serial number to a month

NETWORKDAYS* Returns the number of whole work days between two dates

NOW Returns the serial number of the current date and time

TODAY Returns the serial number of today’s date

WEEKNUM* Returns the week number in the year

YEAR Converts a serial number to a year

Displaying the current date

The following function displays the current date in a cell:

=TODAY()

You can also display the date combined with text. The formula that follows, for example, displays text,

such as

=”Today is “&TEXT(TODAY(),”dddd, mmmm d, yyyy”)

It’s important to understand that the TODAY function is updated whenever the worksheet is calculated.

For example, if you enter either of the preceding formulas into a worksheet, the formulas display the

current date. But when you open the workbook tomorrow, they will display the current date (not the date

when you entered the formula).

Calculating the number of days between two dates

A common type of date calculation determines the number of days between two dates. For example, you

may have a financial worksheet that calculates interest earned on a deposit account. The interest earned

depends on the number of days the account is open. If your sheet contains the open date and the close

date for the account, you can calculate the number of days the account was open.

=EndDay-StartDay+1

Calculating the number of work days between two dates


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When calculating the difference between two dates, you may want to exclude weekends and holidays.

For example, you may need to know how many business days fall in the month of November. This

calculation should exclude Saturdays, Sundays, and holidays. The NETWORKDAYS function can help out.

NEW FEATURE: In versions prior to Excel 2007, the NETWORKDAYS function was available

only when the Analysis ToolPak add-in was installed. The function is now part of Excel 2007.

The NETWORKDAYS function calculates the difference between two dates, excluding weekend days

(Saturdays and Sundays). As an option, you can specify a range of cells that contain the dates of

holidays, which are also excluded. Excel has absolutely no way of determining which days are holidays,

so you must provide this information in a range.

Figure 13.4 shows a worksheet that calculates the work days between two dates. The range A2:A11

contains a list of holiday dates. The two formulas in column C calculate the work days between the dates

in column A and column B. For example, the formula in cell C15 is

=NETWORKDAYS(A15,B15,A2:A11)

This formula returns 4, which means that the seven-day period beginning with January 1 contains four

work days. In other words, the calculation excludes one holiday, one Saturday, and one Sunday. The

formula in cell C16 calculates the total number of work days in the year.

Calculating the number of years between two dates

The following formula calculates the number of years between two dates. This formula assumes that cells

A1 and B1 both contain dates:

=YEAR(A1)-YEAR(B1)

This formula uses the YEAR function to extract the year from each date and then subtracts one year from

the other. If cell B1 contains a more recent date than the date in cell A1, the result will be negative.

13

Displaying the current time

This formula displays the current time as a time serial number (or as a serial number without an

associated date):


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=NOW()-TODAY()

You need to format the cell with a time format to view the result as a recognizable time. The quickest

way is to choose Home ➪ Number ➪ Format Number and select Time from the drop-down list.

ANALYSING DATA

Pivot Tables

A pivot table is essentially a dynamic summary report generated from a database. The database

can reside in a worksheet (in the form of a table) or in an external data file or into a meaningful

presentation of the data. For example, a pivot table can create frequency distributions and cross-

tabulations of several different data dimensions. In addition, you can display subtotals and any

level of detail that you want. Perhaps the most innovative aspect of a pivot table is its

interactivity. After you create a pivot table, you can rearrange the information in almost any way

imaginable and even insert special formulas that perform new calculations.

You even can create post hoc groupings of summary items (for example, combine Northern

Region totals with Western Region totals). And the icing on the cake: With a few mouse clicks,

you can apply formatting to a pivot table to convert it into an attractive report.

One minor drawback to using a pivot table is that, unlike a formula-based summary report, a

pivot table does not update automatically when you change information in the source data. This

drawback doesn’t pose a serious problem, however, because a single click of the Refresh button

forces a pivot table to update itself with the latest data.

A pivot table example

The best way to understand the concept of a pivot table is to see one. Start with the table below which

shows a portion of the data used in creating the pivot table in this chapter.


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FIG

This table is used to create a pivot table.

This table consists of a month’s worth of new account information for a three-branch bank. The table

contains 712 rows, and each row represents a new account. The table has the following columns:

Analyzing Data with Excel

The bank accounts database contains quite a bit of information. But in its current form, the data

doesn’t reveal much. To make the data more useful, you need to summarize it. Summarizing a

database is essentially the process of answering questions about the data. Following are a few

questions that may be of interest to the bank’s management:

• What is the daily total new deposit amount for each branch?

• How many accounts were opened at each branch, broken down by account type?

• What’s the dollar distribution of the different account types?

• What types of accounts do tellers open most often?

• How does the Central branch compare to the other two branches?

• In which branch do tellers open the most checking accounts for new customers?

You can, of course, spend time sorting the data and creating formulas to answer these questions.

Often, however, a pivot table is a much better choice. Creating a pivot table takes only a few

seconds, doesn’t require a single formula, and produces a nice-looking report. In addition, pivot

tables are much less prone to error than creating formulas.


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The picture below shows a pivot table created from the bank data. This pivot table shows the

amount of new deposits, broken down by branch and account type. This particular summary

represents one of dozens of summaries that you can produce from this data.

FIGURE 34.2

A simple pivot table.

The picture below shows another pivot table generated from the bank data. This pivot table uses

a drop-down Report Filter for the Customer item (in row 1). In the figure, the pivot table displays

the data only for Existing customers. (The user can also select New or All from the drop-down

control.) Notice the change in the orientation of the table? For this pivot table, branches appear

as column labels, and account types appear as row labels. This change, which took about five

seconds to make, is another example of the flexibility of a pivot table.


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E 34.3

A pivot table that uses a report filter.

Data appropriate for a pivot table

A pivot table requires that your data is in the form of a rectangular database. You can store the

database in either a worksheet range (which can be a table or just a normal range) or an

external database file. Although Excel can generate a pivot table from any database, not all

databases benefit.

Generally speaking, fields in a database table consist of two types:

• Data: Contains a value or data to be summarized. For the bank account example,

the Amount field is a data field.

• Category: Describes the data. For the bank account data, the Date, AcctType,

OpenedBy, Branch, and Customer fields are category fields because they describe

the data in the Amount field. A single database table can have any number of data

fields and category fields. When you create a pivot table, you usually want to

summarize one or more of the data fields. Conversely, the values in the category

fields appear in the pivot table as rows, columns, or filters.

Creating a Pivot Table

Creating a pivot table is an interactive process. It’s not at all uncommon to experiment with

various layouts until you find one that you’re satisfied with.

If your data is in a worksheet range, select any cell in that range and then choose Insert ➪

Tables ➪PivotTable, which displays the dialog box shown below


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Excel attempts to guess the range, based on the location of the active cell. If you’re creating a

pivot table from an external data source, you need to select that option and then click Choose

Connection to specify the data source. 34.5

In the Create PivotTable dialog box, you tell Excel where the data is and where you want the

pivot table.

Use the bottom section of the Create PivotTable dialog box to indicate the location for your pivot

table. The default location is on a new worksheet, but you can specify any range on any

worksheet, including the worksheet that contains the data.

Click OK, and Excel creates an empty pivot table and displays its PivotTable Field List, as shown

below


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Laying out the pivot table

Next, set up the actual layout of the pivot table. You can do so by using either of these

techniques:

• Drag the field names to one of the four boxes in the PivotTable Field List.

• Right-click a field name and choose its location from the shortcut menu.

1. Drag the Amount field into the Values area. At this point, the pivot table displays the

total of all the values in the Amount column.

2. Drag the AcctType field into the Row Labels area. Now the pivot table shows the total

amount for each of the account types.

3. Drag the Branch field into the Column Labels area. The pivot table shows the amount

for each account type, cross-tabulated by branch.

FIGURE 34.7

Formatting the pivot table

Notice that the pivot table uses General number formatting. To change the number format used,

select any value and choose PivotTable Tools ➪ Options ➪ Active Field ➪ Field Settings to

display the Data Field Settings dialog box. Click the Number Format button and change the

number format.

You can apply any of several built-in styles to a pivot table. Select any cell in the pivot table and

choose PivotTable Tools ➪ Design ➪ PivotTable Styles to select a style.

FIGURE 34.14

Creating Pivot Charts

A pivot chart is a graphical representation of a data summary displayed in a pivot table. A pivot

chart is always based on a pivot table. Although Excel lets you create a pivot table and a pivot

chart at the same time, you can’t create a pivot chart without a pivot table.

Choose Insert ➪ Tables ➪ Pivot Table ➪ Pivot Chart. Excel creates a pivot table and a pivot

chart.

PERFORMING WHAT-IF ANALYSIS FIGURE 36.1

Types of What-If Analyses

Not surprisingly, Excel can handle much more sophisticated models than the preceding example.

To perform a what-if analysis using Excel, you have three basic options:

• Manual what-if analysis: Plug in new values and observe the effects on

formula cells.


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• Data tables: Create a table that displays the results of selected formula cells as

you systematically change one or two input cells.

• Scenario Manager: Create named scenarios and generate reports that use

outlines or pivot tables.

Manual What-If Analysis

This method doesn’t require too much explanation. In fact, the example that opens this chapter

demonstrates how it’s done. Manual what-if analysis is based on the idea that you have one or

more input cells that affect one or more key formula cells. You change the value in the input cells

and see what happens to the formula cells. You may want to print the results or save each

scenario to a new workbook.

The term scenario refers to a specific set of values in one or more input cells.

Manual what-if analysis is very common, and people often use this technique without even

realizing that they’re doing a type of what-if analysis. This method of performing what-if analysis

certainly has nothing wrong with it, but you should be aware of some other techniques.

Data Tables

This section discusses one of Excel’s most underutilized features: data tables. A data table is a

dynamic range that summarizes formula cells for varying input cells. You can create a data table

fairly easily, but data tables have some limitations. In particular, a data table can deal with only

one or two input cells at a time. This limitation becomes clear as you view the examples.

Creating a one-input data table

A one-input data table displays the results of one or more formulas for various values of a single

input cell.

FIGURE 36.2


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How a one-input data table is set up.

You can place the data table anywhere in a worksheet. The left column contains various values

for the single input cell. The top row contains references to formulas located elsewhere in the

worksheet. You can use a single formula reference or any number of formula references. The

upper-left cell of the table remains empty. Excel calculates the values that result from each value

of the input cell and places them under each formula reference.

This example uses the mortgage loan worksheet from earlier in the chapter (see “A What-If

Example”). The goal of this exercise is to create a data table that shows the values of the four

formula cells (loan amount, monthly payment, total payments, and total interest) for various

interest rates ranging from 6 to 8 percent, in 0.25-percent increments. (The file is named

mortgage loan data table.xlsx.)

The screen above shows the setup for the data table area. Row 3 consists of references to the

formulas in the worksheet. For example, cell F3 contains the formula =C10, and cell G3 contains

the formula =C11.

Column E contains the values of the single input cell (interest rate) that Excel will use in the

table.

To create the table, select the data table range (in this case, E3:I12) and then choose Data ➪

Data Tools ➪

What-If Analysis ➪ Data Table. Excel displays the Data Table dialog box, shown below.


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FIGURE 36.4

In the Data Table dialog box, you must specify the worksheet cell that contains the input value.

Because variables for the input cell appear in the left column in the data table, you place this cell

reference in the text box labeled Column Input Cell. Enter C7 or point to the cell in the

worksheet. Leave the Row Input Cell field blank. Click OK, and Excel fills in the table with the

calculated results (see below).

The result of the one-input data table.

Creating a two-input data table

As the name implies, a two-input data table lets you vary two input cells. You can see the setup

for this type of table below.


90

Although it looks similar to a one-input table, the two-input table has one critical difference: It

can show the results of only one formula at a time. With a one-input table, you can place any

number of formulas, or references to formulas, across the top row of the table. In a two-input

table, this top row holds the values for the second input cell. The upper-left cell of the table

contains a reference to the single result formula.

FIGURE 36.6URE 36.7

To create the data table:

1. Enter the response rate values in F4:M4.

2. Enter the number mailed values in E5:E14.

3. Select the range E4:M14 and choose Data ➪ Data Tools ➪ What-If Analysis ➪ Data

Table.

4. In the Data Table dialog box, specify B5 as the Row input cell (the response rate)

and cell

B4 as the Column input (the number mailed).

5. Click OK, and Excel fills in the data table.

Using Scenario Manager

Data tables are useful, but they have a few limitations:

• You can vary only one or two input cells at a time.

• The process of setting up a data table is not all that intuitive.


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• A two-input table shows the results of only one formula cell (although you can create

additional tables for more formulas).

• In many situations, you’re interested in a few select combinations, not an entire table

that shows all possible combinations of two input cells.

Excel’s Scenario Manager Feature makes automating your what-if models easy. You can store

different sets of input values (called changing cells in the terminology of Scenario Manager) for

any number of variables and give a name to each set. You can then select a set of values by

name, and Excel displays the worksheet by using those values. You can also generate a summary

report that shows the effect of various combinations of values on any number of result cells.

These summary reports can be an outline or a pivot table.

For example, your annual sales forecast may depend on several factors. Consequently, you can

define three scenarios: best case, worst case, and most likely case. You then can switch to any of

these scenarios by selecting the named scenario from a list. Excel substitutes the appropriate

input values in your worksheet and recalculates the formulas.

Defining scenarios

To introduce you to Scenario Manager, this section starts with an example that uses a simplified

production model, as shown below.

This workbook, named production model.xlsx,

This worksheet contains two input cells: the hourly labor cost (cell B2) and the unit cost for

materials (cell B3). The company produces three products, and each product requires a different

number of hours and a different amount of materials to produce.36


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Formulas calculate the total profit per product (row 13) and the total combined profit (cell B15).

Management is trying to predict the total profit, but is uncertain what the hourly labor cost and

material costs will be. They’ve identified three scenarios, listed in Table 36.1.

TABLE 36.1

Scenario Hourly Cost Materials Cost

Best Case 30 57

Worst Case 38 62

Most Likely 34 59

The Best Case scenario has the lowest hourly cost and lowest materials cost. The Worst Case

scenario has high values for both the hourly cost and the materials cost. The third scenario, Most

Likely Case, has intermediate values for both of these input cells. The managers need to be

prepared for the worst case, however, and they’re interested in what would happen under the

Best Case scenario.

Choose Data ➪ Data Tools ➪ What-If Analysis ➪ Scenario Manger to display the Scenario

Manager Dialog box. When you first open this dialog box, it tells you that no scenarios are

defined—which is not too surprising because you’re just starting. As you add named scenarios,

they appear in the Scenarios list in this dialog box.

To add a scenario, click the Add button in the Scenario Manager Dialog box. Excel displays its

Add Scenario dialog box, shown below.

This dialog box consists of four parts:

• Scenario Name: The name for the scenario. You can give it any name that you like—

preferably something meaningful.


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• Changing Cells: The input cells for the scenario. You can enter the cell addresses directly or

point to them. If you’ve created a name for the cells, type the name. Non-adjacent cells are

allowed (if pointing to multiple cells, press Ctrl while you click the cells). Each named

scenario can use the same set of changing cells or different changing cells. The number of

changing cells for a scenario is limited to 32.

• Comment: By default, Excel displays the name of the person who created the scenario and

the date that it was created. You can change this text, add new text to it, or delete it.

• Protection: The two Protection options (preventing changes and hiding a scenario) are in

effect only when you protect the worksheet and choose the Scenario option in the Protect

Sheet dialog box. Protecting a scenario prevents anyone from modifying it; a hidden scenario

doesn’t appear in the Scenario Manager Dialog box.

Displaying scenarios

After you define all the scenarios and return to the Scenario Manager Dialog box, the dialog box

displays the names of your defined scenarios. Select one of the scenarios and then click the

Show button. Excel inserts the corresponding values into the changing cells and calculates the

worksheet to show the results for that scenario.

Modifying scenarios

The Edit button in the Scenario Manager Dialog box lets you change one or more of the values

for the changing cells of a scenario. From the Scenarios list, select the scenario that you want to

change and click the Edit button. In the Edit Scenario dialog box, click OK to access the Scenario

Values dialog box. Make your changes and click OK to return to the Scenario Manager Dialog

box. Notice that Excel automatically updates the Comments box with new text that indicates

when the scenario was modified.

Merging scenarios

In workgroup situations, you may have several people working on a spreadsheet model, and

several people may have defined various scenarios. The marketing department, for example, may

have its opinion of what the input cells should be, the finance department may have another

opinion, and your CEO may have yet another opinion.

Excel makes it easy to merge these various scenarios into a single workbook by using the Merge

button in the Scenario Manager Dialog box. Clicking this button displays the Merge Scenarios

dialog box.


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Before you merge scenarios, make sure that the workbook from which you’re merging is open.

Then, click the Merge button in the Scenario Manager Dialog box. Excel displays its Merge

Scenarios dialog box.

Choose the workbook that contains the scenarios you’re merging in the Book drop-down list.

Then, choose the sheet that contains the scenarios you want to merge from the Sheet list box.

(Notice that the dialog box displays the number of scenarios in each sheet as you scroll through

the Sheet list box.) Click OK, and you return to the previous dialog box, which now displays the

scenario names that you merged from the other workbook.

Using the Scenarios Drop-Down List

Excel has a Scenarios control, which is a drop-down list that shows all the defined scenarios and

enables you to quickly display a scenario. Oddly, this useful tool doesn’t appear in the Ribbon.

But, if you use Scenario Manager, you may want to add the Scenarios control to your Quick

Access Toolbar (QAT), using the following procedure:

1. Right-click your QAT and choose Customize Quick Access Toolbar. Excel

displays the Customization tab of the Excel Options dialog box.

2. In the Choose Commands From drop-down list, select Commands not In the

Ribbon.

3. Scroll down the list and select Scenario.

4. Click the Add button.

5. Click OK to close the Excel Options dialog box.

Using the Scenarios control is more efficient than bringing up the Scenario Manager Dialog box to

view a different scenario.

Generating a scenario report

If you’ve created multiple scenarios, you may want to document your work by creating a scenario

summary report. When you click the Summary button in the Scenario Manager Dialog box, Excel

displays the Scenario Summary dialog box.

You have a choice of report types:

• Scenario Summary: The summary report appears in the form of a worksheet

outline.

• Scenario PivotTable: The summary report appears in the form of a pivot table.


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The Scenario Summary dialog box also asks you to specify the result cells (the cells that contain

the formulas in which you’re interested). For this example, select B13:D13 and B15 (a multiple

selection) to make the report show the profit for each product, plus the total profit.

Goal Seeking

Goal Seeking: Determines the value that you need to enter in a single input cell to produce a

result that you want in a dependent (formula) cell.

Solver: Determines the values that you need to enter in multiple input cells to produce a result

that you want. Moreover, because you can specify certain constraints to the problem, you gain

significant problem-solving ability.

Single-Cell Goal Seeking

Single-cell goal seeking is a rather simple concept. Excel determines what value in an input cell

produces a desired result in a formula cell. The following example shows you how single-cell goal

seeking works.

A goal-seeking example

The diagram above shows the mortgage loan worksheet used in the preceding chapter. This

worksheet has four input cells (C4:C7) and four formula cells (C10:C13). Originally, this

worksheet was used for a what-if analysis example. This example demonstrates the opposite


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approach. Rather than supply different input cell values to look at the calculated formulas, this

example lets Excel determine one of the input values that will produce the desired result.

FIGURE 37.1

This worksheet is a good demonstration of goal seeking.

Assume that you’re in the market for a new home and you know that you can afford a $1,800

monthly mortgage payment. You also know that a lender can issue a 30-year fixed-rate mortgage

loan for 6.50 percent, based on an 80-percent loan-to-value (that is, a 20-percent down

payment). The question is “What is the maximum purchase price I can handle?” In other words,

what value in cell C4 causes the formula in cell C11 to result in $1,800? In this simple example,

you could plug values into cell C4 until C11 displays $1,800. With more complex models, Excel

can usually determine the answer much more efficiently.

To answer the question posed in the preceding paragraph, first set up the input cells to match

what you already know. Specifically:

Enter 20% in cell C5 (the down payment percent)

Enter 360 in cell C6 (the loan term, in months)

Enter 6.5% in cell C7, the annual interest rate

Next, choose Data ➪ Data Tools ➪ What-If Analysis ➪ Goal Seek. Excel displays the Goal Seek

dialog box, shown below. Completing this dialog box is similar to forming a sentence.

You want to set cell C11 to 1800 by changing cell C4. Enter this information in the dialog box

either by typing the cell references or by pointing with the mouse. Click OK to begin the goal-

seeking process.

FIGURE 3


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In less than a second, Excel displays the Goal Seek Status box, which shows the target value and

the value that Excel calculated. In this case, Excel found an exact value. The worksheet now

displays the found value in cell C4 ($284,779). As a result of this value, the monthly payment

amount is $1,800. At this point, you have two options:

• Click OK to replace the original value with the found value.

• Click Cancel to restore your worksheet to the form that it had before you chose the Goal

Seek command.

Introducing Solver

The Excel Goal-Seek feature is a useful tool, but it clearly has limitations. It can solve for only

one adjustable cell, and it returns only a single solution. Excel’s powerful Solver tool extends this

concept by enabling you to do the following:

• Specify multiple adjustable cells

• Specify constraints on the values that the adjustable cells can have

• Generate a solution that maximizes or minimizes a particular worksheet cell

• Generate multiple solutions to a problem

Although goal seeking is a relatively simple operation, using Solver can be much more

complicated. In fact, Solver is probably one of the most difficult (and potentially frustrating)

features in Excel. I’m the first to admit that Solver isn’t for everyone. In fact, most Excel users

have no use for this feature.

However, many users find that having this much power is worth spending the extra time to learn

about it.

Appropriate problems for Solver

• Problems that is appropriate for Solver fall into a relatively narrow range. They typically involve

situations that meet the following criteria:

• A target cell depends on other cells and formulas. Typically, you want to maximize or

minimize this target cell or set it equal to some value.

• The target cell depends on a group of cells (called changing cells) that Solver can

adjust to affect the target cell.

• The solution must adhere to certain limitations, or constraints.


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After you set up your worksheet appropriately, you can use Solver to adjust the changing cells

and produce the result that you want in your target cell—and simultaneously meet all the

constraints that you’ve defined.

You access Solver by choosing Data ➪ Analysis ➪ Solver. If this command isn’t available, you

need to install the Solver add-in. It’s a simple process:

1. Choose File ➪ Excel Options.

2. In the Excel Options dialog box, click the Add-Ins tab.

3. At the bottom of the dialog box, select Excel Add-Ins from the Manage

drop-down list and click

Go. Excel displays its Add-Ins dialog box.

4. In the Add-Ins dialog box, place a check mark next to Solver Add-In and

click OK.

A simple Solver example

I start with a simple example to introduce Solver and then present some increasingly complex

examples to demonstrate what this feature can do.

The figure below shows a worksheet that is set up to calculate the profit for three products.

Column B shows the number of units of each product, Column C shows the profit per unit for

each product, and Column D contains formulas that calculate the total profit for each product by

multiplying the units by the profit per unit.

Use Solver to determine the number of units to maximize the total profit.

You don’t need an MBA degree to realize that the greatest profit comes from Product C.

Therefore, in order to maximize total profit, the logical solution is to produce only Product C. If

things were really this simple, you wouldn’t need tools such as Solver. As in most situations, this

company has some constraints that must be met:


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• The combined production capacity is 300 total units per day.

• The company needs 50 units of Product A to fill an existing order.

• The company needs 40 units of Product B to fill an anticipated order.

• Because the market for Product C is relatively limited, the company doesn’t want to

produce more than 40 units of this product.

These four constraints make the problem more realistic and a bit more challenging. In fact, it’s a

perfect problem for Solver.

I go into more detail in a moment, but here is the basic procedure for using Solver:

1. Set up the worksheet with values and formulas. Make sure that you format cells

logically; for example, if you can’t produce partial units of your products, format those

cells to contain numbers with no decimal values.

2. Choose Data ➪ Analysis ➪ Solver to bring up the Solver dialog box.

3. Specify the target cell.

4. Specify the range that contains the changing cells.

5. Specify the constraints.

6. Change the Solver options, if necessary.

7. Let Solver solve the problem.

To start Solver to tackle this example, choose Data ➪ Analysis ➪ Solver. Excel displays its Solver

Parameters dialog box, shown below.

The Solver Parameters dialog box.

In this example, the target cell is D6—the cell that calculates the total profit for three products.


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1. Enter (or point to) cell D6 in the Set Target Cell field of the Solver Parameters

dialog box.

2. Because the objective is to maximize this cell, click the Max option.

3. Next, specify the changing cells (which are in the range B3:B5) in the By

Changing Cells box. The next step is to specify the constraints on the problem. The

constraints are added one at a time and appear in the box labeled Subject To the

Constraints.

4. To add a constraint, click the Add button. Excel displays the Add Constraint dialog

box, shown below.

This dialog box has three parts: a Cell Reference, an operator, and a Constraint value.

5. To set the first constraint (that the total production capacity is 300 units), enter B6

as the

Cell Reference, choose equal (=) from the drop-down list of operators, and enter 300

as the Constraint value.

6. Click Add to add the remaining constraints. The diagram below summarizes the

constraints for this problem.

FIGURE 37ABLE 37.1

Constraints Summary

Constraint Expressed As

Capacity is 300 units B6=300

At least 50 units of Product A B3>=50

At least 40 units of Product B B4>=40

No more than 40 units of Product C B5<=40

7. After you enter the last constraint, click OK to return to the Solver Parameters

dialog box, which now lists the four constraints. At this point, Solver knows everything

about the problem.


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8. Click the Solve button to start the solution process. You can watch the progress

onscreen, and Excel soon announces that it has found a solution. The Solver Results dialog box is

shown below

At this point, you have the following options:

• Replace the original changing cell values with the values that Solver found.

• Restore the original changing cell values.

• Create any or all three reports that describe what Solver did.

• Click the Save Scenario button to save the solution as a scenario, so that

Scenario Manager can use it.

If you specify any report options, Excel creates each report on a new worksheet, with an

appropriate name.

The figure below shows an Answer Report. In the Constraints section of the report, two of the

constraints are binding, which means that these constraints were satisfied at their limit with no

more room to change.


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ANALYSIS TOOLPAK

The Analysis ToolPak is an add-in that provides analytical capability that normally isn’t available.

In previous versions of Excel, the Analysis ToolPak add-in included many additional worksheet

functions. In Excel 2007, these worksheet functions are built into Excel and no longer require the

Analysis ToolPak add-in.

These analysis tools offer many features that may be useful to those in the scientific,

engineering, and educational communities—not to mention business users whose needs extend

beyond the normal spreadsheet fare.

The Analysis ToolPak covers each of the following tools:

• Analysis of variance (three types)

• Correlation

• Covariance

• Descriptive statistics

• Exponential smoothing

• F-Test

• Fourier analysis


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• Histogram

RECORDING A MACRO

A macro is a recorded (or typed) sequence of commands that can be used repeatedly.

Any macro given the name Auto_Open will run the moment the workbook containing the

macro is opened

Macros can greatly speed up your work and increase accuracy by having long sequences of

commands rerun at the press of a button.

Macros can be written in Excel 4 macro language or in Visual Basic, and are stored:

In the case of macros written in Excel 4 language, on a Macro sheet. A macro sheet can be set

up by right-clicking the mouse whilst pointing at a sheet tab.

In the case of macros written in Visual Basic, macros are placed on a Visual Basic sheet, but this

sheet does not appear as a sheet in the workbook. To see this sheet hit Alt F11.

Note: Excel macros can only be recorded in Visual Basic

Macros once written, can be attached to:

• A button drawn on a worksheet

• Any picture or object on the worksheet

• In an icon on the toolbar.

Before recording macros it will be convenient to get the Developer tab displayed on

the ribbon.

Do this by:

1. Click on the Office tool

2. Select “Excel Options” shown at the bottom of the dialogue box

3. Select “Popular”

4. Click the checkbox for “Show Developer tab in the Ribbon”

Alternatively – command path – (Developer/ Record Macro)

Excel 2003 – ( Tools/Macros)


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The easiest way to create a macro is to record it whilst you are actually performing the desired

task.

Recording a Macro:

To record a macro all you have to do is turn on the macro recorder and then perform the

commands as usual.

While you are doing this Excel writes the commands step by step onto a visual basic module

sheet (not visible as a sheet in your workbook)

Steps in recording a macro:

1. Choose Developer/Code/Record Macro OR View/Macros/Record Macro (2003 –

Tools/Macro/Record a new macro)

The following dialogue box appears:

2. Replace the name Macro1 with a name of your choice, and type a single letter to use as a shortcut key

in the “Shortcut Key” box. Pressing Ctrl and this shortcut letter will cause the macro to run once

complete. Avoid shortcut letters that are already used by Excel (such as ctrl c for Copy)

3. Decide where you would like to store this macro. (Normally in this workbook, but if stored in a

Personal Macro Workbook, it will be available for all spreadsheet files)


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4. Click OK. A Stop button appears, and the word Recording appears at the bottom of the screen.

5. Carry out the commands you wish to record

6. When you have finished choose Developer/Code/Stop Recording

7. To view your macro hit Alt F8 (or Developer/Code/Macros), and click the Edit button.

8. The macro now shown can be edited if desired.

Two ways of running a macro:

1. Choose Developer/Code/Macros and click the Run button or

2 Hit the Ctrl key and the shortcut letter you assigned to the macro

Documents

Financial Modelling in Excel