Chapter 16. Financial Analysis with an Electronic Spreadsheet

There are several tools a controller uses to conduct a financial analysis. One is certainly the database of accounting information, in which one can roam for days, tracking down the details regarding when specific transactions have taken place, why they occurred, and the likelihood of their happening again. However, a controller rarely descends straight into the depths of the accounting database without first using some more simple means for determining what problem has arisen, which yields clues regarding where in the database to search. This higher-level information is obtained by using ratio and trend analysis to pinpoint the issue. To get this information, a calculator, pencil, and paper are sufficient, but also very time consuming and prone to error. Instead, an electronic spreadsheet is the best method. This chapter reviews how to use such a spreadsheet—in this case, the Microsoft Excel spreadsheet.

The formulas presented in this chapter are by no means difficult. The discussion is confined to the simplest and most understandable spreadsheet commands and avoids the use of complicated macros. The discussion focuses on using spreadsheets for four types of analysis: financial statements, project analysis, investment analysis, and risk analysis. In each case, we note how Excel can be used to solve a problem, and then do so with a sample situation.

A key issue that is noted throughout this chapter is the difference between ...

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