PROJECT FILE

ON
FINANCIAL MODELLING
Submitted in partial fulfillment of requirement of
Bachelor of Commerce B.Com (H)

B.Com (H) IV TH SEMESTER (M)

BATCH 2017-2020

Submitted to: Submitted by:

Ms. Gurmani Chaddha Subham Moral

(Assistant Professor) 43124588817

JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL,

KALKAJI

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 ACKNOWLEDGEMENT

The present work is an effort to throw some light on “Financial Modelling file”.
With deep sense of gratitude I acknowledge the encouragement and guidance received
by my file guide Ms. Gurmani Chaddha. She has been a constant guiding force and
source of illumination for me without her supervision and motivation the work would not
have been possible. I would like to thank her for her valuable advice and guidance.
I am also thankful to all the respondents who spared their valuable time for helping me
out in this file.

Subham Moral

4312458817

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 CERTIFICATE OF COMPLETION

This is to certify that Mr. Subham Moral pursuing B.Com. (Hons) from Jagannath
International Management School, Kalkaji has completed under my guidance, his
project on Research Methodology as the course requirement of B.com (Hons.) and his
work is appreciable.

We wish him all the best for his future endeavours.

Ms. Gurmani Chadha (Project Guide)

Assistant Professor

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 INDEX

S.NO. CONTENT PAGE NO.

1. What is Microsoft Excel? Mention some features of 6

Excel.

2. How many data formats are available in Excel? 8

Name some of them.

3. What is conditional formatting? Show each type of 9

conditional formatting options with steps. State its
use in practical situations.

4. State the text functions of excel with use of each 10

and depiction of them with an example.

5. State the statistical functions of excel with use of 13

each and depiction of them with an example.

6. State the financial functions of excel with use of 15

each and depiction of them with an example.

7. State the logical functions of excel with use of each 17

and depiction of them with an example

8. What is the LOOKUP function in excel? Show the 19

V lookup and H lookup function with the help of an
example.

9. Define INDEX and MATCH functions with syntax. 22

Show working of both.

10. Explain Macro in MS-Excel. 24

11. Explain “what if analysis “in excel. Explain the 29

solver tool, scenario manager and goal seek options
in Excel with example.

12. Explain pivot tables and its uses, with the help of an 33
example.

13. Define Cell reference and the types of cell 39

references with an example.

4
14. What is template in excel? Take an example of 41
Personal Monthly Budget.

15. Give the keyboard shortcuts in excel. 42

16. Take the sales for 9 periods and forecast the sales 43
for next 4 periods, using forecast and trend
functions. State the difference between
FORECAST and TREND function.

17. Define Financial Modeling. 45

18. What is Time value of Money? Explain the PV, FV 46

and FVSCHEDULE functions.

19. What is Capital budgeting? Show the NPV and IRR 50

functions with an example.

20. Show the calculations of PMT, IPMT and PPMT 54

with an example.

21. What are valuation multiples? Show EBITDA, 58

EV/EBITDA multiple and compare companies on
the basis of these multiples.

22. What is the difference between Enterprise value 60

and Equity Value of a firm?

23. What is WACC? Show the calculations on an excel 62

sheet.

24. MINI PROJECT 64

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Que1.What is Microsoft Excel? Mention some features of Excel.

Microsoft Excel is a software program produced by Microsoft that allows

users to organize, format and calculate data with formulas using a
spreadsheet system. This software is part of the Microsoft Office suite and is
compatible with other applications in the Office suite.

To start Excel 2010 from the Windows Start menu, choose Start→All
Programs→Microsoft Office→Microsoft Excel 2010. A new, blank workbook
appears, ready for you to enter data.

Advantages of using Spreadsheets:

Spreadsheets are preferable to manual calculation and recording of data for a
variety of reasons:
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 Calculations are completed automatically and are accurate.
 MS Excel provides an array of formulas to compute huge calculations.
 Information is organized and easy to access and can be edited easily.
 Data can be quickly sorted, filtered and analyzed.
 Reports can be made more understandable by using charts and graphs.

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Que2. How many data formats are available in Excel? Name some of them.

MS Excel offers over eleven different data formats for data storage. The most
popular formats include:

 The Number Format stores data as a number. A number can include

decimal values and separators for values greater than one thousand.
Numbers can be used for mathematical formulas available in Excel.
 The Currency Format in Excel is a specialized number format that stores
data in the form of a specific currency. Currency indicators can be set
using the number formats available on the home tab.
 The Date Format in Excel allows for data to be stored as dates. Dates are
stored as number values by excel for the purposes of formulas and
calculations.
 The Percentage Format stores numbers as a percentage. The numbers
are stored as a percentage value and the format is taken into account for
calculations.
 The Text Format stores data as strings of texts. Text can include
numbers, letters and symbols.

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Q3. What is conditional formatting? Show each type of conditional formatting
options with steps. State its use in practical situations.

Conditional formatting is a feature of Excel which

allows you to apply a format to a cell or a range
of cells based on certain criteria.
Different types of conditional formatting:

Since the version of Excel 2007, the conditional

formatting tool has been greatly enriched. In the
menu Home>Conditional Formatting, you can
choose from the following options:

I. Apply a logical rule (as superior, inferior to a value)

II. Highlight the highest or lowest value
III. Insert data bars in cells proportional to values
IV. Create a color scales of 2 or 3 colors that varies according to values
V. Add icon sets

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 Q4. State the statistical functions available in Excel, with example.

Function What it does

MAX Returns the largest value from a list of

supplied numbers.

MIN Return the smallest value from a list of

supplied numbers.

LARGE Returns the Kth LARGEST value from a list of

supplied numbers ,for a given value of K.

SMALL Return the Kth Smallest value from a list of

supplied numbers,for a given value of K.

COUNT Returns the number of numerical values in a

supplied set of cells or values.

COUNTA Returns the number of non-blanks in a

supplied set of cells or values

COUNTBLANK Returns the number of blank cells in a

supplied range.

COUNTIF Returns the number of cells(of a supplied

range),that satisfy a given criteria.

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PERCENTILE Returns the Kth percentile of values in a
supplied range, where K is in the range

0-1(inclusive).

Quartile Returns the specified quartile of a set of

supplied numbers, based on percentile
value.

RANK Returns the statistical rank of a given value,

within a supplies array of values.

AVERAGE Returns the Average of a lost of supplied

numbers.

AVERAGE FUNCTION

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QUARTILE FUNCTION

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Q5. State the financial functions of excel with use of each and depiction of them
with an example.

FUNCTION What it does

FV Calculate the future value of an investment with

periodic constant payments and a constant interest
rate.

NPER Returns the number of periods for an investment with

periodic constant payments and a constant interest
rate.

PMT Calculates the payments required to reduce a loan,

from a supplied present value to a specified future
value.

PV Calculate the present value of an investment (i.e. the

total amount that a series of future periodic constant
payments is worth now).

RATE Calculates the interest rate required to pay off a

specified amount of a loan, or reach a target amount
on an investment over a given period

PV FUNCTION

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PMT FUNCTION

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Q6.State the logical functions of excel with use of each and depiction of them
with an example.

FUNCTION What it does

AND Tests a number of user-defined conditions

and returns TRUE if ALL of the conditions
evaluate to TRUE or FALSE otherwise.

OR Tests a number of user-defined conditions

and returns TRUE if ANY of the conditions
evaluate to TRUE or FALSE otherwise.

NOT Returns a logical value that is the opposite of

a user supplied logical value or expression.

(I.e. returns FALSE is the supplied argument

is TRUE and returns TRUE if the supplied
argument is FALSE)

TRUE Returns the logical value TRUE.

FALSE Returns the logical value FALSE

IF Tests a user-defined condition and returns

one result if the condition is TRUE, another
result if the condition is false.

IFERROR Tests if an initial supplied value (or

expression) returns an error, and so returns
a supplied value; Otherwise the function
returns the initial value.

IF FUNCTION

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16
Q7. State the logical functions of excel with use of each and depiction of them
with an example

Function Description Formula Example Formula Description

The formula returns

TRUE if a value in cell
Returns TRUE if all
=AND(A2>=10, A2 is greater than or
AND of the arguments
B2<5) equal to 10, and a value
evaluate to TRUE.
in B2 is less than 5,
FALSE otherwise.

The formula returns

TRUE if A2 is greater
than or equal to 10 or
Returns TRUE if
=OR(A2>=10, B2 is less than 5, or
OR any argument
B2<5) both conditions are
evaluates to TRUE.
met. If neither of the
conditions it met, the
formula returns FALSE.

The formula returns

TRUE if either A2 is
Returns a logical
=XOR(A2>=10, greater than or equal to
XOR Exclusive Or of all
B2<5) 10 or B2 is less than 5.
arguments.
If neither of the
conditions is met or
both conditions are

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 met, the formula
returns FALSE.

Returns the
reversed logical
The formula returns
value of its
FALSE if a value in cell
argument. I.e. If the
NOT =NOT(A2>=10) A1 is greater than or
argument is
equal to 10; TRUE
FALSE, then TRUE
otherwise
is returned and
vice versa.

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Q8. What is the LOOKUP function in excel? Show the Vlookup and Hlookup
function with the help of an example

The Excel LOOKUP function performs an approximate match lookup in a one-

column or one-row range, and returns the corresponding value from another
one-column or one-row range. LOOKUP’s default behavior makes it useful for
solving certain problems in excel.

Use of VLOOKUP function

Vlookup is an Excel function to look up and retrieve data from a specific

column in table. Vlookup supports approximate and exact matching, and
wildcards (* ?) for partial matches . The “V” stands for “vertical”. lookup
values must appear in the first column of the table, with lookup columns to
the right.

SYNTAX

=VLOOKUP (value, table, col_index,range,[range_lookup])

Arguments

VALUE -The value to look for in the first column of a table

TABLE-The table from which to retrieve a value

COL_INDEX-The column in the table from which to retrieve a value

RANGE LOOKUP- [optional] TRUE =approximate match (default),

FALSE=exact match

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HLOOKUP

Hlookup is an excel function to lookup and retrieve data from a specific row in
table. The “H” in hlookup stands for “horizontal”, where lookup values appear
in the first row of the table ,moving horizontally to the right. Lookup supports
approximate and exact matching and wildcards (*?)for finding partial
matches.

SYNTAX

=HLOOKUP(value,table,row_index,[range_lookup])

Arguments

VALUE- The value to look up

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TABLE-The table from which to retrieve data

ROW_INDEX-The row number from which to retrieve data

RANGE LOOKUP-[optional] A Boolean to indicate exact match or approximate

match. Default=TRUE=approximate match

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Q9. Define INDEX and MATCH functions with syntax.Show working of both

INDEX FUNCTION

The excel INDEX function returns the value at a given position in a range or
array. You can use index to retrieve individual values or entire rows and
columns. INDEX is often used with the MATCH function, where MATCH locates
and feeds a position to INDEX

SYNTAX

=INDEX(array,row_num,[col_num],[area_num])

ARRAY-A range of cells, or an array constant

ROW_NUM-The row position in the reference or array

COL_NUM-[optional]The column position in the reference or array

AREA_NUM-[optional]The range in reference that should be used

MATCH FUNCTION

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Match is an excel function used to locate the position of a lookup value in a
row,column,or table. Match supports approximate and exact, matching and
wildcards(*?) for partial matches.Often,the index function is combined with
Match to retrieve the value at the position returned by match

=MATCH(lookup_value,lookup_array,[match_type])

Arguments

Lookup value-The value to match in lookup array

Lookup array-A range of cells or an array reference.

Match type-[optional]how to match ,specified as -1,0,or1.Default is 1

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 Q10. Explain Macro in MS-Excel

Definition - What does MACRO mean?

A macro is an automated input sequence that imitates keystrokes or mouse
actions. A macro is typically used to replace a repetitive series of keyboard
and mouse actions and are common in spreadsheet and word processing
applications like MS Excel and MS Word. The file extension of a macro is
commonly .MAC. The concept of macros is also well-known among MMORPG
gamers (Massively Multiplayer)

The first step to record a macro is to get the Developer tab in the ribbon.

If you can already see the developer tab in the ribbon, go to the next section,
else follow the below steps:

Right-click on any of the existing tabs in the ribbon and click on ‘Customize

the Ribbon’ option. It will open the Excel Options dialogue box.

 In the Excel Options dialogue box, you will have the Customize the Ribbon
options. On the right, within the Main Tabs pane, check the Developer

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 option.

 Click OK.

The above steps would make the Developer tab available in the ribbon area.

Here are the steps to record this macro:

1. Click the Developer tab.

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2. In the Code group, click on the Macro button. This will open the ‘Record
Macro’ dialog box.

3. In the Record Macro dialog box, enter a name for your macro. I am using the
name EnterText. There are some naming conditions that you need to follow
when naming a macro. For example, you cannot use spaces in between. I
usually prefer to keep my macro names as a single word, with different
parts with a capitalized first alphabet. You can also use underscore to
separate two words – such as Enter_Text.

4. (Optional Step) You can assign a keyboard shortcut if you want. In this case,
we will use the shortcut Control + Shift + N. Remember that the shortcut
you assign here would override any existing shortcuts in your workbook.
For example, if you assign the shortcut Control + S, you will not be able to
use this for saving the workbook (instead, every time you use it, it will

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 execute the macro).

In the ‘Store macro in’ option, make sure ‘This Workbook’ is selected. This
step ensures that the macro is a part of the workbook. It will be there when

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 you save it and reopen again, or even if you share it with someone.

5. (Optional Step) Enter a description. I usually don’t do this, but if you’re

extremely organized, you may want to add what the macro is about.
6. Click OK. As soon as you click OK, it starts to record your actions in Excel.
You can see the ‘Stop recording’ button in the Developer tab, which
indicates that the macro recording is in progress.
7. Select cell A2.
8. Enter the text Excel (or you can use your name).
9. Hit the Enter key. This will select cell A3.
10. Click on the Stop Recording button the Developer tab.

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Q11. Explain “what if analysis” in excel. Explain the solver tool, scenario
manager and goal seek options in Excel with example.
Sol. Solver is a Microsoft Excel add-in program you can use for what-if
analysis. Use Solver to find an optimal (maximum or minimum) value for a
formula in one cell — called the objective cell — subject to constraints, or
limits, on the values of other formula cells on a worksheet. In simple words,
you can use Solver to determine the maximum or minimum value of one cell
by changing other cells. For example, you can change the amount of your
projected advertising budget and see the effect on your projected profit
amount.
For example:
If we order 800 monitors, 200 tv’s and 200 cpu’s, the total profit will be
Rs.20600.

In order to apply solver on the above example, the following steps will be
executed:
1. On the Data tab, in the Analyze group, click Solver.

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2. Enter the solver parameters.

3. You have the choice of typing the range names or clicking on the cells in
the spreadsheet.
a. Enter Total Profit for the Objective.
b. Click Max.
c. Enter Order Size for the Changing Variable Cells.
d. Click Add to enter the following constraint.
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4. Check 'Make Unconstrained Variables Non-Negative' and select 'Simplex
LP'.
5. Finally, click Solve.
6. Result:

After using Solver:

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32
Q12. Explain pivot tables and its uses, with the help of an example.

What is a Pivot Table?

A Pivot Table is a summary of a large dataset that usually includes the total
figures, average, minimum, maximum, etc. let's say you have a sales data for
different regions, with a pivot table, you can summarize the data by region
and find the average sales per region, the maximum and minimum sale per
region, etc. Pivot tables allow us to analyse, summarize and show only
relevant data in our reports.

Step by Step tutorial on creating pivot tables

The image below shows the sample sales data collated from North wind
access database.

As you can see from the above image, our spreadsheet contains a lot of data.
Let's say we want to create a summary of customers, group all of their orders
by product, and show the quantities, unit price and subtotals for all the
transactions.

 Open the Excel file that you downloaded

 Click on INSERT tab on the ribbon

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 You will get the following window

 Click on the select table/range button as shown in the image above

 You will get the following mini window

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 Click in cell address A1
 Press Ctrl + A on the keyboard to select all the data cells
 Your mini window shown now appear as follows

 Click on Close button to get back to the options window

 Click on OK button

 Select the following fields

o Company Name
o Product Name
o Unit Price
o Quantity
o Subtotal
 Your worksheet should now look as follows

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 Note the above data has been grouped by customer company name,
product name, unit price, sum of quantities and the sum of the subtotals.
 Notice the drop down button next to Rows Labels. This button allows us
to sort/filter our data. Let's assume we are only interested in Alfreds
Futterkiste
 Click on the Row Labels drop down list as shown below

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 Remove the tick from (Select All)
 Select Alfreds Futterkiste
 Click on OK button
 You will get the following data

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38
Q.13 Define Cell reference and types of cell references with an example.

A cell reference refers to a cell or a range of cells on a worksheet and can be

used in a formula so that Microsoft Office Excel can find the values or data that
you want that formula to calculate.

In one or several formulas, you can use a cell reference to refer to:

1. Data from one or more contiguous cells on the worksheet.

2. Data contained in different areas of a worksheet.
3. Data on other worksheets in the same workbook.

Many formulas in Excel contain references to other cells. These references

allow formulas to dynamically update their contents.

We can distinguish three types of cell references: relative, absolute and mixed.

Relative cell references

This is the standard type of reference. Look at the following example:

Example:

If cell A1 contains value 2, and cell B1 contains formula =A1+2 (referring to

cell A1), then the formula B1 contains value 4. If you change the value in
cell A1 to 5, then the value in cell B1 automatically changes to 7.

Absolute cell references

Absolute cell reference always points to the same place, even if you change the
position of any of those cells. In other words, if you have cell A1 which refers
to the contents of cell B1 (=$B$1) and then you change the position of A1 it
will still refer to cell B1. If you drag cell B1 to another location, for
example, B3, then A1 will point to the new location of the same cell (=$B$3).

Mixed cell references

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A mixed reference is a reference that refers to a specific row or column. For
example, $A1 or A$1. If you want to create a mixed reference- press the F4 key
on the formula bar two or three times depending on whether you want to
refer to row or column. Press F4 one more time to go back to the relative cell
reference.

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Q 14. What is template in excel? Take an example of Personal Monthly Budget?

Templates are used in programs like Excel and Google Sheets to save time
when creating the same type of file repeatedly, like a weekly log or expense
report. In a Excel template is a file that is saved with a different file extension
and serves as a basis for new files. The template file contains a variety of
content and settings that are applied to the new files created from the
template. Templates are created by saving a normal document with a special
extension, then storing it in the correct directory.

Q 15 Give the keyboard shortcuts in excel

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 Excel Shortcuts
Edit active cell F2
Cut Ctrl X
Copy Ctrl C
Paste Ctrl V
Undo Ctrl Z
Paste Special Alt E S
Start a new line within the same cell Alt Enter
Select all used cells (select entire worksheet if
command is repeated) Ctrl A
Select the adjacent cell Shift Arrow
Select the entire row Shift Spacebar
Select the entire column Ctrl Spacebar
Select all to the last used cell of the sheet Ctrl Shift End
Ctrl Page
Move to the next or previous worksheet Up/Down
Enter date Ctrl ;
Enter time Ctrl :
Open a file Ctrl O
Save a file Ctrl S
Save As F12
New file Ctrl N

Q 16 Take the sales for 9 periods and forecast the sales for nest 4 periods, using
forecast and trend functions. State the difference between FORECAST and
TREND function.

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Forecast in Excel {=Forecast (X, Known Y’s, Known X’s)}

 X Required. The data point for which you want to predict a value.
 Known_Y's Required. The dependent array or range of data.
 Known_X's Required. The independent array or range of data.

The forecast function in Excel generally has three main categories.

1. Consider the X value

2. Consider the Y value—which means the already existing value for Y
3. The last category is known as the new values for X
While inputting these values to run and execute, it delivers the baby Y which
is the forecast value. This also means that the forecast in Excel will also help in
generating single values or output that is derived from the input values

Trend in Excel {=Trend (Known Y’s, [Known X’s], [New X’s], [Const.])}
Known_y’s (required argument)

It is the set of y-values we already know in the relationship y = mx + b.

Known_x’s (optional argument)

It is a set of x-values. If we provide the argument, it should be of the same

length as the set of known_y’s. If omitted, the set of [known_x’s] takes on the
value {1, 2, 3, …}.

New_x’s (optional argument)

It provides one or more array of numeric values that represent the new_x’s
value. If the [new_x’s] argument is omitted, it is set to be equal to the
[known_x’s].

Const (optional argument)

It specifies whether to force the constant b to equal 0. If const is TRUE or

omitted, b is calculated normally. If false, b is set equal to 0 (zero) and the m-
values are adjusted so that y = mx.

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Trend generally has four categories.

1. The first category is generally known for Y values

2. The second category is known for the X values
3. The third category is known for the new values of X
4. And the last category is known for the constant value
The constant value, for example, means that you have limited amount to
spend each month, or the converse—that there is no limit to the amount you
are able to spend each month. This function will help you deliver baby Y
values as their result.

You can also say that the trend function will either help you deliver a single
value, or a series of values. A series is usually shown as an array, followed by
functionality as a result.

Q 17. Define financial Modelling.

44
Financial modeling is the process conducted to create a financial
representation of the entity. It is through this financial model that the
financial analyst tries to forecast future earnings and performance of the
company. The analysts use numerous forecast theories and valuations to
recreate business operations. The financial model once completed, displays a
mathematical depiction of the business events. The primary tool utilized to
create the financial model is the excel spreadsheet.

Advantages of financial modeling:

The benefits of financial modeling are huge. The most important advantage is
availability of information for decision making in order to take strategic
advantage. Even if a model is based on assumptions, this can help you to
estimate the financial results. In a model, different scenarios can be created
and tested. Thus, a company can adapt quickly to a changing situation and
avoid liquidity risk.

Another advantage of the financial modeling is its flexibility. Experienced

Financial Modeler can make extensive changes to a model in a few hours.
Another important advantage is the efficiency of the Financial Modeling.
Spreadsheet programs are installed by default on most computers and
therefore no additional investment is required. In addition, no programming
skills are required.

Q 18. What is Time vale of Money? Explain the FV, PV and FVSCHEDULE
function?

45
The time value of money (TVM) is the concept that money available at the
present time is worth more than the identical sum in the future due to its
potential earning capacity. This core principle of finance holds that, provided
money can earn interest, any amount of money is worth more the sooner it is
received. TVM is also sometimes referred to as present discounted value.

FV Function (Future Value)

=FV (rate, nper, pmt, [pv], [type])

Arguments

rate - The interest rate per period.

nper - The total number of payment periods.

pmt - The payment made each period. Must be entered as a negative number.

pv - [optional] The present value of future payments. If omitted, assumed to

be zero. Must be entered as a negative number.

type - [optional] When payments are due. 0 = end of period, 1 = beginning of

period. Default is 0.

46
PV Function (Present Value)

=PV (rate, nper, pmt, [fv], [type])

Arguments

rate - The interest rate per period.

nper - The total number of payment periods.

pmt - The payment made each period.

fv - [optional] A cash balance you want to attain after the last payment is
made. If omitted, assumed to be zero.

type - [optional] When payments are due. 0 = end of period, 1 = beginning of

period. Default is 0.

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FVSCHEDULE

=FVSCHEDULE (principal, schedule)

Arguments

principal - The initial investment sum.

schedule - Schedule of interest rates, provided as range or array.

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Q19. What is Capital budgeting? Show the NPV and IRR functions with an
example.

Capital budgeting is the process in which a business determines and evaluates

potential large expenses or investments. These expenditures and investments
include projects such as building a new plant or investing in a long-term
venture.
Net Present value (NPV):
NPV = (Today’s value of the expected cash flows) – (Today’s value of invested
cash)
Net present value (NPV) is the difference between the present value of cash
inflows and the present value of cash outflows over a period of time.
It helps in assuming if the initial investment on a project will be profitable or
not.
Syntax: =PV (rate, nper, pmt, [fv], [type])
Rate – It refers to the rate of return of the investment.
Nper – refers to number of payments to be made to complete the investment.
Pmt – This refers to number of periods for which the investment is held.

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Fv - It refers to the future value of the present investment.

XNPV

The Excel XNPV function is a financial function that calculates the net present
value (NPV) of an investment using a discount rate and a series of cash flows
that occur at irregular intervals.

Purpose

Calculate net present value for irregular cash flows

Syntax

=XNPV (rate, values, dates)

rate - Discount rate to apply to the cash flows.

values - Values representing cash flows.

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dates - Dates that correspond to cash flows.

Internal Rate of return (IRR):

IRR is defined as the discount rate that sets the NPV of a project to zero is the
project's IRR. Here is the IRR Formula.

For calculating the Internal Rate of Return with the help of this IRR formula,
the NPV value is set to zero and then the discount rate is found out.

IRR Formula

=IRR (values, [guess])

The IRR function uses the following arguments:

1. Values (required argument) – It is an array of values that represent the

series of cash flows. Cash flows include investment and net income
values. Values can be a reference to a range of cells containing values.

51
 2. [Guess] (optional argument) – It is a number guessed by the user that is
close to the expected internal rate of return (as there can be two
solutions for the internal rate of return). If omitted, the function will
take a default value of 0.1 (=10%).

XIRR

XIRR is a function in Excel for calculating internal rate of return or annualized

yield for a schedule of cash flows occurring at irregular intervals. In a SIP, you
keep investing regularly over a long period and get back the maturity amount
upon exit.

Purpose

Calculate internal rate of return for irregular cash flows

Syntax

=XIRR (values, dates, [guess])

values - Array or reference to cells that contain cash flows.

dates - Dates that correspond to cash flows.

guess - [optional] An estimate for expected IRR. Default is .1 (10%).

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 Q 20. How the calculations of PMT, IPMT and PPMT with an example.

PMT
The Excel PMT function is a financial function that returns the periodic
payment for a loan. You can use the NPER function to figure out payments for
a loan, given the loan amount, number of periods, and interest rate.
Purpose
Get the periodic payment for a loan
Syntax
=PMT (rate, nper, pv, [fv], [type])
 rate - The interest rate for the loan.
 nper - The total number of payments for the loan.
 pv - The present value, or total value of all loan payments now.
 fv - [optional] The future value, or a cash balance you want after the last
payment is made. Defaults to 0 (zero).
 type - [optional] When payments are due. 0 = end of period. 1 = beginning of
period. Default is 0.

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IPMT

The Excel IPMT function can be used to calculate the interest portion of a
given loan payment in a given payment period. For example, you can use IPMT
to get the interest amount of a payment for the first period, the last period, or
any period in between.
Purpose
Get interest in given period
Syntax
=IPMT (rate, per, nper, pv, [fv], [type])
rate - The interest rate per period.

per - The payment period of interest.

nper - The total number of payment periods.

pv - The present value, or total value of all payments now.

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fv - [optional] The cash balance desired after last payment is made. Defaults to
0.

type - [optional] When payments are due. 0 = end of period. 1 = beginning of

period. Default is 0.

PPMT

The Excel PPMT function can be used to calculate the principal portion of a
given loan payment. For example, you can use PPMT to get the principal
amount of a payment for the first period, the last period, or any period in
between.
Purpose
Get principal payment in given period
Return value
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 The principal payment
Syntax
=PPMT (rate, per, nper, pv, [fv], [type])
 rate - The interest rate per period.
 per - The payment period of interest.
 nper - The total number of payments for the loan.
 pv - The present value, or total value of all payments now.
 fv - [optional] The cash balance desired after last payment is made. Defaults to
0.
 type - [optional] When payments are due. 0 = end of period. 1 = beginning of
period. Default is 0.

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Q.21 What are valuation multiples? Show EBITDA, EV/EBITDA multiple and
compare companies on the basis of these multiples.

VALUATION MULTIPLES
Valuation multiples are the quickest way to value a company, and are useful in
comparing similar companies (comparable company analysis). They attempt
to capture many of a firm's operating and financial characteristics (e.g.
expected growth) in a single number that can be multiplied by some financial
metric (e.g. EBITDA) to yield an enterprise or equity value. Multiples are
expressed as a ratio of capital investment to a financial metric attributable to
providers of that capital

EBITDA

Earnings before interest, tax, depreciation and amortization (EBITDA) are a

measure of a company's operating performance. Essentially, it's a way to
evaluate a company's performance without having to factor in financing
decisions, accounting decisions or tax environments.

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EV/EBITDA

EV/EBITDA is a ratio that compares a company’s Enterprise Value (EV) to its

Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA). The
EV/EBITDA ratio is commonly used as a valuation metric to compare the
relative value of different businesses.

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22) What is the difference between Enterprise value and Equity Value of a firm?
Enterprise value
The enterprise value (which can also be called firm value, or asset value) is
the total value of the assets of the business (excluding cash).
When you value a business using unlevered free cash flow in a DCF model you
are calculating the firm’s enterprise value.
If you already know the firm’s equity value as well their total debt and cash
balances, you can use them to calculate enterprise value.

Enterprise value formula

If equity, debt, and cash are known then you can calculate enterprise value as
follows:
EV = (share price x # of shares) + total debt – cash
Where EV equals Enterprise Value. Note: If a business has minority interest
that must be added to the EV as well. Learn more about minority interest in
enterprise value calculations.
Or
Calculate the Net Present Value of all Free Cash Flow to the Firm (FCFF) in
a DCF Model to arrive at Enterprise Value.

Equity value
The equity value (or net asset value) is the value that remains for the
shareholders after any debts have been paid off. When you value a company
using levered free cash flow in a DCF model you are determining the

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company’s equity value. If you know the enterprise value and have the total
amount of debt and cash at the firm you can calculate the equity value as
shown below.

Equity value formula

If enterprise value, debt, and cash are all known then you can calculate equity
value as follows:
Equity value = Enterprise Value – total debt + cash
Or
Equity value = # of shares x share price

Use in valuation
An Enterprise value is more commonly used in valuation techniques as it
makes companies more comparable by removing their capital structure from
the equation.
In investment banking, for example, it’s much more common to value the
entire business (enterprise value) when advising a client on an M&A process.
In equity research, by contrast, it’s more common to focus on the equity value,
since research analysts are advising investors on buying individual shares, not
the entire business.

Example comparison
In the illustration below you will see an example of enterprise value vs equity
value. We take two companies that have the same asset value and show what
happens to their equity value as we change their capital structures.

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As shown above, if two companies have the same enterprise value (asset
value, net of cash), they do not necessarily have the same equity value. Firm
#2 financed its assets mostly with debt and therefore has a much smaller
equity value.

Q23. What is WACC? Show the calculations on an excel sheet.

The weighted average cost of capital (WACC) is a financial metric that shows
what the total cost of capital (the interest rate paid on funds used
for financing operations) is for a firm.

All companies need to finance operations, and this funding comes from two
sources: debt or equity. Each source has a cost associated with it. When
analyzing different financing options, whether through debt, equity, or a
combination of both, calculating the WACC provides the company with its
financing cost. Whatever the WACC rate ends up being, it is then used
to discount the project or business in a valuation model.

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WACC Calculation
The WACC takes into account both debt and equity sources of capital and the
proportion of total capital each source represents. The weights are simply the
ratios of debt and equity to the total amount of capital. As an equation, it
would be expressed as:

WACC = wD*rD *(1-t) + wP*rP + wE*rE

Where:

 w = the respective weight of debt, preferred stock/equity, and equity in

the total capital structure
 t = tax rate
 D = cost of debt
 P = cost of preferred stock/equity
 E = cost of equity

For debt capital, the cost is either the actual interest rate of the bonds, or the
interest rate of comparable debt for a similar business. You reduce the cost of
debt by (1 - tax rate) because interest payments on debt are tax-deductible,
and this tax break lowers the debt's effective cost.

For equity funds, the cost of capital is more complicated because there is no
stated interest rate. For preferred stock, you can calculate the cost as
the dividend rate of the shares. Using the Capital Asset Pricing Model (CAPM),
you can estimate the cost of equity.

In terms of capital cost, the scale from cheapest to most expensive runs: debt,
preferred equity and finally equity.

Calculating WACC in Excel

Calculating WACC is easy. As with most financial modeling, the most
challenging part is getting the correct data to plug into the model.

Here is an vivid yet easy example of Weighted average cost of capital :

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24. MINI PROJECT:
Take a company and analyze it through various Balance Sheet and Profit &amp;
Loss Account Ratios. Analyze the trends of these ratios individually and judge
the company on liquidity, capital structure, profitability and turnover basis.
Also analyze the share of operating, investing and financing activities through
the use of cash flow statement and graphs.

COMPANY NAME: TVS MOTORS

The following is the balance sheet and capital ratios of TVS Motors.

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64
The quick ratio of TVS Motors is fluctuating below the ideal ratio which means there is
lack of liquidity in the company.

Income statement

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TVS Motors have been consistently achieving profit throughout the years and inventory
is not being managed well.

Cash flow statement

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Cash flow from Operating Activities has seen a substantial decrease over the years, which means
decrease in Liquidity of its business.

TVS Motors is decreasing its use of cash while investing in investment hence it can be seen that
there has been substantial increase in company liabilities and Financial activities.

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