Chapter 4

Building a Financial Model by the Rulebook

IN THIS CHAPTER

check Documenting assumptions

check Creating dynamic formulas using links

check Entering data once

check Modeling with consistent formulas

check Building error checks

check Formatting and labeling your models

Because Excel is such a wonderfully flexible and universal tool, you can pretty much do anything with it — but that doesn’t mean you should! A key danger of using Excel is lack of discipline, leading to dangerous errors. When building a financial model in Excel, you’re unlikely to encounter the limitations and boundaries imposed by other, less flexible software, so there are certain rules you should follow to avoid these issues. In this chapter, I fill you in on the key rules you should follow when building a financial model.

Document Your Assumptions

The term “garbage in, garbage out” is never truer than in relation to financial modeling. ...

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