Start from Home

Does it irritate you to open and see an excel file with active cell not at the first cell or top left corner and then you have to scroll every worksheet to see it from start or It might simply annoy your boss to open an excel file sent by you with active cell not in top left.

CTRL + HOME is short cut key to take to the top left corner and CTRL + PAGE UP is the short key that takes you to worksheet on left.

So if you start with the last worksheet of excel file keeping CTRL button pressed, start pressing HOME  and PAGE UP alternatively.

After doing this you will end up at the first worksheet of your excel file with active cell at top left of every worksheet.

For that matter, it can be an excel best practice to save every file with active cell at top left.

CIAO!

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Depreciation calculation – Maximize the benefit

Today I got a mail from Modeloff for registration of their 2017 championship event, in addition, new past questions were uploaded. This blog refers to one of their past questions asked in 2016 championship event Round 2 Section 4 – Case Study – Maximize the Benefit. In the question, they essentially asked to calculate different depreciation method and recommend the most tax efficient tax method. The time awarded was 36 min. The question served me as a great refresher to different depreciation method calculation, although took much longer time than that was given. I thought sharing the solution would be great.

The depreciation methods in question were Declining balance (DBM), Straight line (SLM), Units of production (UOP), Sum of years (SOY). The excel functions like DB, SLN, SYD serve little purpose here as the calculation is far more complex.

A method for calculation of DBM, UOP & SOY was same as to calculate the yearly depreciation rate >> reverse the rates >> calculate depreciation. The reverse ticker method is used to reduce the calculation load when we have different depreciation rates each year coupled with CAPEX lasting number of years, otherwise, the calculation will be difficult to handle.

All the yearly depreciation rates are calculated first and then reversed using OFFSET function. The reversed rates are then multiplied with CAPEX using SUMPRODUCT.

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Have a better understanding of formulas after looking at the worksheet linked. It takes a time to understand and even longer to master. But very helpful in building complex models.

In SLM the depreciation rate is constant for the given years. It is relatively easy to calculate, the challenge here is to remove the assets which are fully depreciated otherwise the depreciation will be inflated. The formula keeps accumulating the depreciation till the assets are fully depreciated, as the years goes beyond the life of asset it starts subtracting the fully depreciated asset depreciation from the accumulated depreciation. The formula again requires practice to master.

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The depreciation tax shield is calculated by multiplying the tax rate and total yearly depreciation. NPV of tax shield is calculated using discount rate given. Higher the NPV more preferred the method

Please go through the file linked to have a better understanding of different depreciation method calculation. The question file is also inserted in the worksheet.

Link to the file : Depreciation_Maximize_Benefit

Thanks!

 

 

 

Data Analysis by Date

Recently, I was given sales data to be analyzed by date. It was suspected that more sales is done towards the end of month to meet the month end target. Essentially they wanted to know the sales pattern in months across the years to be divided between dates 1-20, last 3 days and remaining days. Different ending date of months made the problem difficult.

The function EOMONTH was there for rescue. It returns the last day of the month that is the indicated number of months before or after start date. It is extensively used in financial world.

I have created dummy data to show the analysis. First I created helper columns to breakdown the problem. Columns were created for first date of the month, 20th date, 3 days before last date and last date.

 

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By giving -1 as months after start date and then adding 1 to it gives me first date of the month. The last date of the month was EOMONTH function with 0 month after start date. Finding 20th date of the month and 3 days before the last date is matter of simple adding and subtracting number.

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After making helper columns using simple IF function did the job for me. Then I collated the functions in helper column to make a single cell formula. It did the job for me. Later I used pivot table for further analysis.

Thanks!

 

 

 

NPV, IRR and their variants

Net Present Value (NPV), as the name suggest it is the sum of present value of outflow  and inflow cash discounted at a rate. Lets assume some Cashflow (CF) and find out the NPV using discount rate formula

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At a discount rate of 8%, Present Value (PV) factor is calculated and multiplied with CF. The the discounted CF gives the NPV. The same can be achieved by using NPV formula as seen in the screen shot.

Internal Rate of Return (IRR) is the rate at which NPV is zero. If we separately find out the sum of NPV of outflow and inflow using a rate, we will get a value. Using Goal seek function of excel, we set the target value of sum to zero by changing the rate cell, we will get IRR in the rate cell. The same result can be achieved by using IRR function.

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Now that we have learned the basics lets move forward. The NPV and IRR function assume the CF to happen annually, which may not be the case. For that we have functions like XNPV and XIRR at our disposal. Lets assume some random dates and find out the XNPV and XIRR.

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We can observe the difference between two types of function.

People working in Project finance related assignment know that IRR is an optimistic number because the intermediate CF are reinvested at IRR, which may not represent the realty and hence making IRR a highly optimistic or inflated rate of return. To counter this we use Modified IRR (MIRR). MIRR considers both the cost of the investment and the interest received on reinvestment of cash.

Finance rate is the rate at which cash outflow is funded, usually cost of capital. Reinvestment rate is the rate at which intermediate CF are assumed invested, usually a mutually agreed conservative rate. Therefore MIRR represents a relatively fairer rate of return on the investment. Lets again assume some numbers and verify this.

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We can see that MIRR is lower than IRR, when a conservative reinvestment rate is used. MIRR equals IRR when FR & RR equals IRR, which cannot be true in most cases.

But wait, again MIRR assumes annual cashflow, what if CF are not annual. And there is no direct function for it!

This requires a deeper understanding of how MIRR is calculated. Lets recalculate the MIRR in above example.

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As you can see in above screen shot that outflow and inflow are separated. For outflow the NPV is found using Finance rate. For Inflow the future value is found using formula at time period 5. The MIRR is calculated using IRR function with NPV of outflow and total future value of inflow.

We have to use above logic to calculate MIRR with non periodic CF, lets call it Non Perodic MIRR (NP MIRR).

We calculate the present value of outflow using XNPV and future value of inflow using yearfrac function and formula. After getting the value we simply calculate the XIRR of CF, which gives us the NP MIRR. We can see that MIRR and NP MIRR are different.

Link to the file :

https://drive.google.com/file/d/0B2FLZ9YjqpJTMnJ3RGJlT2VSUFU/view?usp=sharing

Thanks!

Project Management (Time)

In Project Management, we essentially manage Time, control Cost without compromising Quality of the work. In today’s blog entry I present a worksheet which I made recently to manage time and cost of a Project.

Below you see the snapshot of Summary of the Report. The first two columns tells you about the number and name of ongoing Projects. Next 5 columns tells you about the financial status of the Project. Like Budget Amount vs Budget Consumed etc. The remaining columns tells you the status the different activities whether they are completed, ongoing or not yet started.

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However the activity status columns do not give us the detailed picture, the management may need. For that we need to refer next Project worksheets.

Below you see the snapshot of Project worksheet. For different activities Planned vs Actual dates are given. Based on dates the excel Gantt chart gets mapped, blue for planned and orange for actual. The dates are on weekly basis, can be put on daily basis. Filters are provided to view only planned or actual activities. % Done column is provided for the Manager to fill the % activity completed as on date.

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I have used conditional formatting for making the excel Gantt chart. The dates and values assumed are approx. User need to correct it as per his/her need. Hope you find it useful. Link to file:-

https://drive.google.com/file/d/0B2FLZ9YjqpJTdEhNdnNwcEVDYVk/view?usp=sharing

Other related entry :-

Gantt Chart

 

 

 

Excel file embeded in MS Outlook

For some reason one of my colleague wanted to embed the excel file attachment in the main body of outlook letter he was typing. However he  wasn’t getting through as the embedded image was large and showing content of file. The display as icon option was also not working.

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Later we found by right clicking on the file image throws you option to convert the the file to other formats where the display as icon option is live. By selection the option the file is embed nicely in mail body.

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I use office 2010.

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