Financial Analysis and Modeling Using Excel and VBA

Chapter 12. Building Good Excel Models and Debugging Them

In Chapter 1: Introduction to Financial Analysis and Modeling, I discuss the steps to building models using both Excel and VBA and stress that it is best to start developing good model-building habits from the very beginning. In this chapter, I cover three important topics that will help you develop good models efficiently. I then conclude with a discussion of how you should work through the Excel models in the following chapters for maximum benefit.

Attributes of Good Excel Models

While Excel models can be widely different from one another, ail good ones need to have certain common attributes. In this section, I briefly describe the attributes that you should try to build into your models. Some of these apply to VBA models as well. I am including them both here and in the similar chapter for VBA so that you can have comprehensive lists of the attributes at both places.

Realistic

Most models you develop will be directly or indirectly used to make some decisions. The output of the model must therefore be realistic. This means that the assumptions, mathematical relationships, and inputs you use in the model must be realistic. For most real-world models, making sure of this takes a lot of time and effort, but this is not a place where you should cut corners. If a model does not produce realistic outputs, it does not matter how good its outputs look or how well it works otherwise.

Error-Free

It is equally important that a model be ...