How Do I Perform a Financial Analysis Using Excel?

Sean Ross is a strategic adviser at 1031x.com, Investopedia contributor, and the founder and manager of Free Lances Ltd.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Investors can use Excel to run technical calculations or produce fundamental accounting ratios. Corporations may use Excel to run a capital budgeting analysis, risk analysis or discount cash flows. Options traders often use Excel to run Black-Scholes pricing. There are hundreds of standard financial analysis models that can be performed through Excel.

Excel for Finance Professionals

Extreme working knowledge of Excel and mastery of common Excel functions is invaluable for those in financial careers. Any data can be inputted and manipulated, as long as it is quantifiable.

While it might be impossible to master of all Excel's features, it's critical to understand how to perform functions that are critical to a specific analyst role. Try to apply something akin to the 80-20 rule to your Excel uses — 80 percent of your results might stem from 20 percent of your Excel functions and shortcuts.

Common analysis features include data manipulation, formatting, pivot tables, lookup and valuation equations.

Excel for Investors

Investors perform financial analysis in one of two broad ways. The first focuses on data retrieved from a company's financial statements (fundamental analysis), which can provide Excel with the building blocks for advanced equations. The second focuses on charting, probabilities and if-then analysis (technical analysis).

Excel is probably more useful to the fundamental analyst. Technical analysis often relies heavily on interactive charts. These charts are easier to use and update quickly through actual technical charting software instead of Excel.

Excel for Accountants and Consultants

Sometimes financial analysis is about restating known information instead of predicting future information. For accountants and consultants, Excel can run functions for depreciation, amortization, taxes, and budgeting.

Excel naturally lends itself to cost accounting through its flexibility. Unlike financial accounting, which has rigid rules and a relatively uniform methodology, cost accounting should be modified to fit the individual needs of the firm.

Excel can track, update and present information in ways that allow for more intelligent business decisions.

The Durbin Watson statistic is a number that tests for autocorrelation in the residuals from a statistical regression analysis.

Correlation is a statistical measure of how two securities move in relation to each other. Investors use correlation to diversify their portfolios and hedge against risk.

The least squares method is a statistical technique to determine the line of best fit for a model, specified by an equation with certain parameters to observed data.

Growth rates are the percent change of a variable over time. It can be applied to GDP, corporate revenue, or an investment portfolio. Here’s how to calculate growth rates.

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock, serving as a profitability indicator.

A marginal benefit is the added satisfaction or utility a consumer enjoys from an additional unit of a good or service.

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