Financial Model Errors

The following video is borrowed from our platform and was originally recorded for our financial modeling training program.   In the following video, you will see some common financial model errors and learn how to avoid them.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. One of the most common types of error is related to data entry, even for those who are being very careful. Therefore, embedding formulas within the excel model is important, rather than relying on manual calculations.
  2. Ensure to watch out for errors in parenthesis and always check to see the value calculated appears reasonable. If you can, check your formula against simple math. Some of excels financial formulas are also a little tricky so if you don’t know exactly what you are doing, use the excel help function.
  3. Break long formulas into simple steps and add or multiply those formula segments. in these formulas, double-check that your formula refers to the right cells. Finally, know which formula to use and what parameters to specify (i.e. NPV or XNPV, SUM or SUMPRODUCT or SUMIF etc.)
  4. By selecting a cell and clicking F2, it highlights the cell references in your formula in different, easy to see colours. This is particularly useful when working on a new version of a model where changes have been made (i.e. adding or deleting rows and columns). be very patient with these changes.
  5. Excel allows you to name and define ranges, which can really help make formulas easy to develop. The main gains from adopting this is the efficiency, transparency and simplicity of the resulting excel model. To name a cell, simply click on it and type the name you want above.
  6. When in doubt, use the excel help feature. Type your query in the top right of your excel window. If you cant find the answer you are looking for, simply type the query into Google where an answer should be provided.

Be sure to avoid these financial model errors in order to construct better, more accurate financial models.

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