Financial Data Modeling in Excel
Expert-defined terms from the Professional Certificate in Excel for Accounting Professionals (United Kingdom) course at London School of Business and Administration. Free to read, free to share, paired with a professional course.
Accounting Equation #
The fundamental concept in accounting that represents the relationship between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity. Related terms: Balance Sheet, Financial Statements. In Financial Data Modeling in Excel, the accounting equation is used to create a dynamic balance sheet that automatically updates when changes are made to the underlying data.
Amortization #
The process of gradually reducing the cost of an intangible asset over its useful life, which is typically done on a straight-line basis. Related terms: Depreciation, Intangible Assets. In Excel, amortization can be calculated using the formula =Cost/Useful Life.
Asset #
A tangible or intangible resource that is owned or controlled by a company, which is expected to generate future economic benefits. Related terms: Liability, Equity. In Financial Data Modeling in Excel, assets are typically represented as accounts on the balance sheet.
Audit #
An independent examination of a company's financial statements and records to ensure that they are accurate and comply with relevant laws and regulations. Related terms: Financial Statements, Internal Control. In Excel, audit trails can be created using formulas and macros to track changes made to the financial data.
Balance Sheet #
A snapshot of a company's financial position at a specific point in time, which presents the company's assets, liabilities, and equity. Related terms: Income Statement, Cash Flow Statement. In Financial Data Modeling in Excel, the balance sheet is used to create a dynamic financial model that automatically updates when changes are made to the underlying data.
Bond #
A type of debt security that represents a loan made by an investor to a borrower, which typically pays a fixed rate of interest and returns the principal amount at maturity. Related terms: Stock, Dividend. In Excel, bond valuations can be calculated using the formula =PV(Rate,Nper,Pmt,FV).
Break #
Even Analysis: A technique used to determine the point at which a company's revenue equals its total fixed and variable costs, which is typically expressed as a formula =Fixed Costs/Contribution Margin. Related terms: Cost-Volume-Profit Analysis, Margin of Safety. In Excel, break-even analysis can be performed using charts and tables to visualize the results.
Budgeting #
The process of planning and controlling a company's financial resources to achieve its strategic objectives, which typically involves creating a detailed budget that outlines projected income and expenses. Related terms: Forecasting, Variance Analysis. In Financial Data Modeling in Excel, budgeting is used to create a comprehensive financial plan that takes into account various assumptions and scenarios.
Capital Budgeting #
The process of evaluating and selecting investment projects that are expected to generate returns over a long period of time, which typically involves using techniques such as net present value (NPV) and internal rate of return (IRR). Related terms: Cost of Capital, Hurdle Rate. In Excel, capital budgeting can be performed using formulas and functions such as NPV and IRR.
Cash Flow Statement #
A report that presents a company's inflows and outflows of cash over a specific period of time, which is typically divided into three sections: operating, investing, and financing activities. Related terms: Income Statement, Balance Sheet. In Financial Data Modeling in Excel, the cash flow statement is used to create a dynamic financial model that automatically updates when changes are made to the underlying data.
Cost Accounting #
A system of accounting that is used to determine the cost of producing a company's products or services, which typically involves techniques such as job-order costing and process costing. Related terms: Financial Accounting, Management Accounting. In Excel, cost accounting can be performed using formulas and functions such as absorption costing and marginal costing.
Cost of Capital #
The rate of return that a company must earn on its investments to satisfy its creditors, shareholders, and other stakeholders, which is typically calculated using the formula =Weighted Average Cost of Capital (WACC). Related terms: Capital Budgeting, Hurdle Rate. In Excel, cost of capital can be calculated using formulas and functions such as WACC and IRR.
Cost #
Volume-Profit Analysis: A technique used to determine the relationship between a company's costs, volume, and profit, which is typically expressed as a formula =Contribution Margin/ Sales. Related terms: Break-Even Analysis, Margin of Safety. In Excel, cost-volume-profit analysis can be performed using charts and tables to visualize the results.
Depreciation #
The process of allocating the cost of a tangible asset over its useful life, which is typically done on a straight-line basis. Related terms: Amortization, Intangible Assets. In Excel, depreciation can be calculated using the formula =Cost/Useful Life.
Dividend #
A payment made by a company to its shareholders, which is typically expressed as a percentage of the company's earnings. Related terms: Stock, Bond. In Excel, dividend valuations can be calculated using the formula =PV(Rate,Nper,Pmt,FV).
Financial Modeling #
The process of creating a mathematical representation of a company's financial performance, which is typically used to forecast future financial results and make strategic decisions. Related terms: Financial Planning, Budgeting. In Excel, financial modeling is used to create a comprehensive financial plan that takes into account various assumptions and scenarios.
Financial Planning #
The process of creating a comprehensive plan that outlines a company's financial goals and objectives, which typically involves techniques such as forecasting and budgeting. Related terms: Financial Modeling, Strategic Planning. In Excel, financial planning is used to create a detailed financial plan that takes into account various assumptions and scenarios.
Financial Ratios #
Metrics that are used to evaluate a company's financial performance, which are typically calculated using formulas and functions such as debt-to-equity and current ratio. Related terms: Financial Statements, Financial Analysis. In Excel, financial ratios can be calculated using formulas and functions such as SUM and AVERAGE.
Financial Statements #
Reports that present a company's financial position, performance, and cash flows over a specific period of time, which are typically divided into three main statements: balance sheet, income statement, and cash flow statement. Related terms: Financial Modeling, Financial Planning. In Excel, financial statements are used to create a dynamic financial model that automatically updates when changes are made to the underlying data.
Forecasting #
The process of predicting a company's future financial results, which is typically done using techniques such as regression analysis and time series analysis. Related terms: Budgeting, Variance Analysis. In Excel, forecasting can be performed using formulas and functions such as TREND and FORECAST.
GAAP (Generally Accepted Accounting Principles) #
A set of rules and standards that govern financial accounting and reporting, which are typically used to ensure that financial statements are presented in a consistent and transparent manner. Related terms: IFRS, Financial Statements. In Excel, GAAP is used to create a compliant financial model that follows the relevant accounting standards.
Hurdle Rate #
The minimum rate of return that a company must earn on its investments to satisfy its creditors, shareholders, and other stakeholders, which is typically calculated using the formula =Weighted Average Cost of Capital (WACC). Related terms: Cost of Capital, Capital Budgeting. In Excel, hurdle rate can be calculated using formulas and functions such as WACC and IRR.
IFRS (International Financial Reporting Standards) #
A set of rules and standards that govern financial accounting and reporting, which are typically used to ensure that financial statements are presented in a consistent and transparent manner. Related terms: GAAP, Financial Statements. In Excel, IFRS is used to create a compliant financial model that follows the relevant accounting standards.
Income Statement #
A report that presents a company's revenues and expenses over a specific period of time, which is typically divided into three main sections: revenues, cost of goods sold, and operating expenses. Related terms: Balance Sheet, Cash Flow Statement. In Financial Data Modeling in Excel, the income statement is used to create a dynamic financial model that automatically updates when changes are made to the underlying data.
Intangible Assets #
Non-physical assets that are owned or controlled by a company, which are expected to generate future economic benefits, such as patents, trademarks, and copyrights. Related terms: Tangible Assets, Amortization. In Excel, intangible assets can be represented as accounts on the balance sheet.
Internal Control #
A system of policies and procedures that are used to ensure that a company's financial transactions are accurate, complete, and authorized, which typically involves techniques such as segregation of duties and physical controls. Related terms: Audit, Financial Statements. In Excel, internal control can be implemented using formulas and macros to track changes made to the financial data.
Internal Rate of Return (IRR) #
A metric that represents the rate of return that a company can expect to earn on its investments, which is typically calculated using the formula =NPV(Rate,Nper,Pmt,FV). Related terms: Net Present Value (NPV), Cost of Capital. In Excel, IRR can be calculated using formulas and functions such as IRR and XIRR.
Liability #
A debt or obligation that a company is responsible for paying, which is typically represented as a account on the balance sheet. Related terms: Asset, Equity. In Financial Data Modeling in Excel, liabilities are typically represented as accounts on the balance sheet.
Margin of Safety #
A metric that represents the difference between a company's sales and its break-even point, which is typically expressed as a percentage of sales. Related terms: Break-Even Analysis, Cost-Volume-Profit Analysis. In Excel, margin of safety can be calculated using formulas and functions such as SUM and AVERAGE.
Net Present Value (NPV) #
A metric that represents the present value of a company's future cash flows, which is typically calculated using the formula =PV(Rate,Nper,Pmt,FV). Related terms: Internal Rate of Return (IRR), Cost of Capital. In Excel, NPV can be calculated using formulas and functions such as NPV and XNPV.
Price #
Earnings Ratio (P/E Ratio): A metric that represents the relationship between a company's stock price and its earnings per share, which is typically calculated using the formula =Stock Price/Earnings Per Share. Related terms: Earnings Per Share (EPS), Dividend Yield. In Excel, P/E ratio can be calculated using formulas and functions such as SUM and AVERAGE.
Return on Equity (ROE) #
A metric that represents the return that a company generates on its shareholders' equity, which is typically calculated using the formula =Net Income/Total Shareholders' Equity. Related terms: Return on Assets (ROA), Return on Sales (ROS). In Excel, ROE can be calculated using formulas and functions such as SUM and AVERAGE.
Return on Investment (ROI) #
A metric that represents the return that a company generates on its investments, which is typically calculated using the formula =Gain/Cost. Related terms: Internal Rate of Return (IRR), Net Present Value (NPV). In Excel, ROI can be calculated using formulas and functions such as SUM and AVERAGE.
Risk Management #
The process of identifying and mitigating risks that could impact a company's financial performance, which typically involves techniques such as hedging and diversification. Related terms: Financial Modeling, Financial Planning. In Excel, risk management can be performed using formulas and functions such as Monte Carlo simulation and sensitivity analysis.
Stock #
A type of equity security that represents ownership in a company, which typically pays a dividend and offers the potential for long-term capital appreciation. Related terms: Bond, Dividend. In Excel, stock valuations can be calculated using the formula =PV(Rate,Nper,Pmt,FV).
Strategic Planning #
The process of creating a comprehensive plan that outlines a company's long-term goals and objectives, which typically involves techniques such as SWOT analysis and portfolio management. Related terms: Financial Planning, Financial Modeling. In Excel, strategic planning is used to create a detailed financial plan that takes into account various assumptions and scenarios.
Time Series Analysis #
A technique used to analyze and forecast a company's financial data over time, which typically involves using methods such as regression analysis and exponential smoothing. Related terms: Forecasting, Financial Modeling. In Excel, time series analysis can be performed using formulas and functions such as TREND and FORECAST.
Variance Analysis #
The process of analyzing the differences between a company's actual and budgeted financial results, which typically involves techniques such as flexible budgeting and standard costing. Related terms: Budgeting, Forecasting. In Excel, variance analysis can be performed using formulas and functions such as SUM and AVERAGE.
Weighted Average Cost of Capital (WACC) #
A metric that represents the average cost of a company's capital, which is typically calculated using the formula =Weighted Average Cost of Debt + Weighted Average Cost of Equity. Related terms: Cost of Capital, Hurdle Rate. In Excel, WACC can be calculated using formulas and functions such as WACC and IRR.