Business Analysis Microsoft Excel 2010
, by Carlberg, Conrad
- ISBN: 9780789743176 | 0789743175
- Cover: Paperback
- Copyright: 6/9/2010
This is the most practical, wide-ranging, and useful guide to using Microsoft Excel 2010 for business analysis. Long-time Excel MVP Conrad Carlberg shows how to use Excel 2010 to gain insight and solve problems in virtually every area of business, from finance and marketing to quality management. Utilizing real-world examples, he demonstrates how to make the most of powerful new Excel 2010 features, including Sparklines, Excel Web App, Slicer, and Excel's new Solver and calculation engine. Writing for managers and professionals in businesses of all sizes, Carlberg covers these and many other topics: " Analyzing revenues, profits, cash flow, fixed assets, inventories, growth, working capital, and more " Forecasting sales through regression and smoothing approaches " Preparing business cases and pro formas that reflect market size/share, opportunity costs, discount rates, profitability, payback times, and contribution and margin analysis " Using Excel's built-in functions to measure product quality, uncover problems, and identify solutions This book will be indispensable for all Excel user who wants to gain a deeper understanding of where their businesses stand financially, and make better decisions about investments and business priorities. This book is part of the new MrExcel Library series, edited by Bill Jelen, world-renowned Excel expert and host of the enormously popular Excel help site, MrExcel.com. Shows how to use Excel to take total control over company finances Covers everything from financial statements and marketing to investment decision-making and quality management, using real-world examples Demonstrates powerful new features, including Sparklines, Slicer, and the new Solver Part of the new MrExcel's Library series, edited by Excel legend Bill Jelen
Conrad Carlberg is president of Network Control Systems, Inc., a software-development and consulting firm that specializes in statistical and database applications, and Beyond the Ledgers, a joint venture that develops and markets software coupling Excel to QuickBooks™. He holds a Ph.D. in statistics and is a many-time recipient of Microsoft’s Most Valuable Professional Award. He lives near San Diego.
Introduction .................................................................................................... 1
Taking It on Faith ............................................................................................................................ 2
Renamed and Improved Functions in Excel 2010 ........................................................................... 3
Compatibility ............................................................................................................................ 4
Consistency ............................................................................................................................... 4
How This Book Is Organized ............................................................................................................ 6
Two Special Skills: Named Ranges and Array Formulas .................................................................. 6
Assigning Names ...................................................................................................................... 7
Using Array Formulas ............................................................................................................... 8
Conventions Used in This Book ....................................................................................................... 9
PART I ANALYZING FINANCIAL STATEMENTS
1 Working with Income Statements ...............................................................11
Keeping Score ............................................................................................................................... 11
Choosing the Right Perspective .............................................................................................. 12
Defining Two Purposes for Accounting ................................................................................... 12
Using the Income Statement ........................................................................................................ 13
Choosing a Reporting Method ................................................................................................ 14
Cells in Excel ........................................................................................................................... 15
Measuring the Operating and Nonoperating Segments ......................................................... 19
Moving from the General Journal to the Income Statement ......................................................... 20
Getting the General Journal into Excel .................................................................................... 20
Understanding Absolute, Relative, and Mixed References ...................................................... 22
Getting the Journal Data to the Ledger .................................................................................. 23
Getting the Ledger Data to the Income Statement ................................................................. 27
Managing the Financial Analyses with Accrual Accounting .......................................................... 28
Using Straight-Line Depreciation............................................................................................ 32
Preparing the Trial Balance .................................................................................................... 33
Moving Information into an Income Statement ..................................................................... 33
Organizing with Traditional Versus Contribution Approaches ...................................................... 34
2 Balance Sheet: Current Assets .....................................................................37
Designing the Balance Sheet ........................................................................................................ 38
Understanding Balance Sheet Accounts ................................................................................. 38
Understanding Debit and Credit Entries ................................................................................. 39
Getting a Current Asset Cash Balance ........................................................................................... 41
Using Sheet-Level Names ....................................................................................................... 41
Getting a Cash Balance for Multiple Cash Accounts ................................................................ 44
Handling Restricted Cash Accounts ......................................................................................... 46
Getting a Current Asset Accounts Receivable Balance ................................................................... 46
Allowing for Doubtful Accounts .............................................................................................. 47
Using the Aging Approach to Estimating Uncollectibles ......................................................... 48
Using the Percentage of Sales Approach to Estimating Uncollectibles ................................... 51
Getting a Prepaid Expenses Balance ............................................................................................. 52
Dealing with Insurance as a Prepaid Expense ......................................................................... 53
Getting a Current Asset Balance.................................................................................................... 54
Understanding the Inventory Flow ......................................................................................... 55
Closing the Inventory Account ................................................................................................ 56
Closing the Revenue and Expense Accounts ........................................................................... 56
3 Valuing Inventories for the Balance Sheet ...................................................59
Understanding Perpetual and Periodic Inventory Systems ........................................................... 60
Perpetual Inventory Systems .................................................................................................. 61
Periodic Inventory Systems .................................................................................................... 62
Valuing Inventories ....................................................................................................................... 64
Valuation Methods Summarized ............................................................................................ 64
Using Specific Identification ................................................................................................... 66
Using Average Cost ................................................................................................................. 72
Using the Moving Average Method ........................................................................................ 77
Calculating the Moving Average and Weighted Average ....................................................... 79
Using FIFO .............................................................................................................................. 81
Using LIFO .............................................................................................................................. 87
Comparing the Four Valuation Methods ....................................................................................... 89
Specification Identification ..................................................................................................... 89
Average Cost ........................................................................................................................... 89
FIFO ....................................................................................................................................... 90
LIFO ....................................................................................................................................... 90
Handling Purchase Discounts ........................................................................................................ 91
Calculating Turns Ratios ................................................................................................................ 92
4 Summarizing Transactions: From the Journals to the Balance Sheet .............95
Understanding Journals ................................................................................................................ 97
Understanding Special Journals .............................................................................................. 98
Structuring the Special Sales Journal ...................................................................................... 98
Structuring the Special Purchases Journal ............................................................................ 100
Structuring the Cash Receipts Journal .................................................................................. 101
Structuring the Cash Payments Journal ................................................................................ 103
Excel Tables and Dynamic Range Names .................................................................................... 104
Building Dynamic Range Names ........................................................................................... 106
Using Dynamic Range Names in the Journals ....................................................................... 108
Choosing Between Tables and Dynamic Range Names ......................................................... 108
Understanding Ledgers............................................................................................................... 110
Creating the General Ledger ................................................................................................. 110
Creating Subsidiary Ledgers ................................................................................................. 112
Automating the Posting Process........................................................................................... 113
Getting a Current Liabilities Balance ........................................................................................... 121
5 Working Capital and Cash Flow Analysis ....................................................123
Matching Costs and Revenues .................................................................................................... 123
Broadening the Definition: Cash Versus Working Capital............................................................ 125
Determining the Amount of Working Capital ....................................................................... 126
Determining Changes in Working Capital ............................................................................. 133
Analyzing Cash Flow ................................................................................................................... 137
Developing the Basic Information ........................................................................................ 138
Summarizing the Sources and Uses of Working Capital ........................................................ 140
Identifying Cash Flows Due to Operating Activities .............................................................. 141
Combining Cash from Operations with Cash from Nonoperating Transactions ..................... 142
6 Statement Analysis ..................................................................................145
Understanding a Report by Means of Common-Sizing ............................................................... 146
Using Common-Sized Income Statements............................................................................ 146
Using Common-Sized Balance Sheets ................................................................................... 148
Using Comparative Financial Statements ............................................................................. 149
Using Dollar and Percent Changes in Statement Analysis ........................................................... 152
Assessing the Financial Statements ...................................................................................... 152
Handling Error Values ........................................................................................................... 154
Evaluating Percentage Changes ........................................................................................... 155
Common-Sizing and Comparative Analyses in Other Applications ............................................. 156
Working in Excel with a Profit & Loss from QuickBooks ........................................................ 156
Working in Excel with a QuickBooks Balance Sheet .............................................................. 158
Common-Sizing for Variance Analysis ........................................................................................ 160
Ratio to Ratio Comparisons .................................................................................................. 163
Common-Sizing by Headcount ................................................................................................... 164
7 Ratio Analysis ..........................................................................................169
Interpreting Industry Averages and Trends ................................................................................ 170
Comparing Ratios Within Industries ........................................................................................... 171
Analyzing Ratios Vertically and Horizontally ........................................................................ 172
Getting a Basis for Ratios ...................................................................................................... 173
Analyzing Profitability Ratios ...................................................................................................... 176
Finding and Evaluating Earnings Per Share .......................................................................... 176
Determining Gross Profit Margin .......................................................................................... 177
Determining Net Profit Margin ............................................................................................. 179
Determining the Return on Assets ........................................................................................ 180
Determining the Return on Equity ........................................................................................ 182
Analyzing Leverage Ratios .......................................................................................................... 183
Determining the Debt Ratio.................................................................................................. 184
Determining the Equity Ratio ............................................................................................... 184
Determining the Times Interest Earned Ratio ....................................................................... 185
Analyzing Liquidity Ratios .......................................................................................................... 186
Determining the Current Ratio ............................................................................................. 186
Determining the Quick Ratio ................................................................................................ 187
Analyzing Activity Ratios ............................................................................................................ 188
Determining the Average Collection Period .......................................................................... 188
Determining Inventory Turnover .......................................................................................... 190
PART II FINANCIAL PLANNING AND CONTROL
8 Budgeting and Planning Cycle ..................................................................191
Creating Pro Forma Financial Statements ................................................................................... 191
Forecasting by Percentage of Sales....................................................................................... 193
Using Excel to Manage the Analysis ............................................................................................ 199
Performing Sensitivity Analysis ............................................................................................ 200
Moving from the Pro Forma to the Budget ................................................................................. 201
Projecting Quarterly Sales..................................................................................................... 201
Estimating Inventory Levels ................................................................................................. 202
Fitting the Budget to the Business Plan................................................................................ 205
9 Forecasting and Projections ......................................................................207
Making Sure You Have a Useful Baseline .................................................................................... 208
Moving Average Forecasts .......................................................................................................... 210
Creating Forecasts with the Moving Average Add-In ........................................................... 212
Dealing with the Layout of Excel’s Moving Averages ............................................................ 213
Creating Moving Average Forecasts with Excel’s Charts ....................................................... 215
Forecasting with Excel’s Regression Functions ........................................................................... 216
Making Linear Forecasts: The TREND Function ..................................................................... 217
Making Nonlinear Forecasts: The GROWTH Function ............................................................ 220
Creating Regression Forecasts with Excel’s Charts ................................................................ 223
Forecasting with Excel’s Smoothing Functions ........................................................................... 225
Projecting with Smoothing................................................................................................... 225
Using the Exponential Smoothing Add-In ............................................................................ 226
Choosing a Smoothing Constant........................................................................................... 228
Making Smoothed Forecasts Handle Seasonal Data ............................................................. 229
Using the Box-Jenkins ARIMA Approach: When Excel’s Built-In Functions Won’t Do ................. 234
Understanding ARIMA Basics ................................................................................................ 234
Charting the Correlograms ................................................................................................... 235
Starting with Correlograms to Identify a Model ................................................................... 236
Identifying Other Box-Jenkins Models .................................................................................. 237
10 Measuring Quality ....................................................................................241
Monitoring Quality Through Statistical Process Control .............................................................. 242
Using Averages from Samples .............................................................................................. 242
Using X-and-S Charts for Variables ....................................................................................... 243
Interpreting the Control Limits ............................................................................................. 247
Manufacturing ...................................................................................................................... 247
Using P-Charts for Dichotomies ............................................................................................ 251
Choosing the Sample Size ..................................................................................................... 253
Determining That a Process Is Out of Control ....................................................................... 255
Using X-and-MR Charts for Individual Observations ............................................................. 258
Creating SPC Charts Using Excel ............................................................................................ 259
Performing Acceptance Sampling ............................................................................................... 262
Charting the Operating Characteristic Curve ......................................................................... 263
Using Worksheet Functions for Quality Control .......................................................................... 268
Sampling Units from a Finite Population .............................................................................. 269
Using HYPGEOM.DIST in Excel 2010 .................................................................................. 270
Sampling Units from a Nonfinite Population .............................................................................. 271
Using NORMSDIST to Approximate BINOMDIST ............................................................... 271
Sampling Defects in Units ..................................................................................................... 277
Using the CRITBINOM Function.......................................................................................... 279
PART III INVESTMENT DECISIONS
11 Examining a Business Case: Investment ....................................................285
Developing a Business Case ........................................................................................................ 286
Getting Consensus for the Plan ............................................................................................. 286
Showing Your Work .............................................................................................................. 288
Developing the Excel Model ........................................................................................................ 289
Developing the Inputs .......................................................................................................... 290
Identifying the Costs ............................................................................................................. 292
Moving to the Pro Forma ...................................................................................................... 293
Preparing the Cash Flow Analysis ......................................................................................... 296
12 Examining Decision Criteria for a Business Case .........................................299
Understanding Payback Periods ................................................................................................. 300
Understanding Future Value, Present Value, and Net Present Value .......................................... 304
Calculating Future Value....................................................................................................... 305
Calculating Present Value ..................................................................................................... 305
Calculating Net Present Value .............................................................................................. 306
Optimizing Costs ................................................................................................................... 308
13 Creating a Sensitivity Analysis for a Business Case .....................................315
Reviewing the Business Case ...................................................................................................... 315
Managing Scenarios ................................................................................................................... 316
Saving a Scenario for the Base Case ...................................................................................... 318
Developing Alternative Scenarios ......................................................................................... 320
Developing Scenarios That Vary Expenses ............................................................................ 323
Summarizing the Scenarios .................................................................................................. 324
Measuring Profit ......................................................................................................................... 325
Calculating Internal Rate of Return....................................................................................... 325
Calculating Profitability Indexes ........................................................................................... 327
Estimating the Continuing Value .......................................................................................... 327
Varying the Discount Rate Input ................................................................................................. 330
Using the Goal Seek Tool ............................................................................................................ 332
14 Planning Profits .......................................................................................335
Understanding the Effects of Leverage ....................................................................................... 335
The Effect of Business Risk .................................................................................................... 336
Analyzing Operating Leverage .................................................................................................... 337
Evaluating the Financial Implications of an Operational Change .......................................... 338
Evaluating Fixed Expenses .................................................................................................... 339
Evaluating Effect of Increasing Fixed Costs ........................................................................... 345
Planning by Using the DOL ................................................................................................... 347
Analyzing Financial Leverage ..................................................................................................... 348
Distinguishing Business from Financial Risk ......................................................................... 348
Determining the Debt Ratio.................................................................................................. 349
Determining the Times Interest Earned Ratio ....................................................................... 350
15 Making Investment Decisions Under
Uncertain Conditions .............................................................................353
Using Standard Deviations .......................................................................................................... 354
Using Excel’s Standard Deviation Functions.......................................................................... 356
Understanding Confidence Intervals ........................................................................................... 357
Using Confidence Intervals in a Market Research Situation .................................................. 358
Calculating a Confidence Interval ......................................................................................... 359
Interpreting the Interval ....................................................................................................... 360
Refining Confidence Intervals ............................................................................................... 361
Using Regression Analysis in Decision Making ............................................................................ 362
Regressing One Variable onto Another ................................................................................. 362
Interpreting the Trendline .................................................................................................... 364
Avoiding Traps in Interpretation: Association Versus Causation ........................................... 367
Regressing One Variable onto Several Other Variables: Multiple Regression ........................ 368
Using Excel’s Regression Add-In ........................................................................................... 373
Interpreting Regression Output ............................................................................................ 375
Estimating with Multiple Regression .................................................................................... 377
Using Excel’s TREND Function ............................................................................................... 377
16 Fixed Assets .............................................................................................383
Determining Original Cost .......................................................................................................... 383
Determining Costs ................................................................................................................ 384
Choosing Between Actual Cost and Replacement Cost ......................................................... 385
Depreciating Assets .................................................................................................................... 386
Understanding the Concept of Depreciation ......................................................................... 387
Matching Revenues to Costs ................................................................................................. 387
Using Straight-Line Depreciation.......................................................................................... 389
Using the Declining Balance Method .................................................................................... 390
Using the Double Declining Balance Function to Calculate Depreciation .............................. 393
Using Variable Declining Balance Depreciation .................................................................... 395
Using Sum-of-Years’-Digits Depreciation ............................................................................. 397
PART IV SALES AND MARKETING
17 Importing Business Data into Excel ...........................................................399
Creating and Using ODBC Queries ............................................................................................... 400
Preparing to Import Data...................................................................................................... 401
Specifying Data Sources ........................................................................................................ 401
Creating Queries with the Query Wizard ............................................................................... 405
Creating Queries with Microsoft Query ................................................................................. 407
Creating Parameterized Queries in Microsoft Query ............................................................. 410
Using Joins in Microsoft Query .............................................................................................. 411
Working with External Data Ranges ........................................................................................... 412
Include Row Numbers .......................................................................................................... 412
Adjust Column Width ........................................................................................................... 412
Preserve Column Sort/Filter/Layout ..................................................................................... 413
Preserve Cell Formatting ...................................................................................................... 413
Insert Cells for New Data, Delete Unused Cells ..................................................................... 414
Insert Entire Rows for New Data. Clear Unused Cells ............................................................ 415
Overwrite Existing Cells with New Data, Clear Unused Cells ................................................. 416
Managing Security Information ............................................................................................ 416
Arranging Automatic Refreshes ............................................................................................ 418
Setting Other Data Range Options ........................................................................................ 419
Importing Data to Pivot Tables and Charts ........................................................................... 420
Creating and Using Web Queries ................................................................................................ 424
Using Parameterized Web Queries.............................................................................................. 426
18 Exporting Business Data from Excel ..........................................................429
Using VBA to Update an External Database ................................................................................ 429
Getting at VBA ...................................................................................................................... 430
Structuring the Worksheet ................................................................................................... 431
Establishing Command Buttons ............................................................................................ 432
Editing the Record’s Values......................................................................................................... 433
Using Database Objects ........................................................................................................ 435
Using With Blocks ....................................................................................................................... 436
Finding the Right Record ...................................................................................................... 437
Editing the Record ................................................................................................................ 438
Adding New Records to the Recordset ........................................................................................ 439
Choosing to Use ADO .................................................................................................................. 442
Back Ends Perform Data Management ................................................................................. 442
19 Analyzing Contributions and Margins ........................................................445
Calculating the Contribution Margin........................................................................................... 446
Classifying Costs ................................................................................................................... 447
Estimating Semivariable Costs .............................................................................................. 448
Using Unit Contribution .............................................................................................................. 449
Producing Digital Video Discs (Continued) ........................................................................... 449
Increasing the Contribution Margin ...................................................................................... 450
Creating an Operating Income Statement ............................................................................ 451
Finding the Break-Even Point ..................................................................................................... 452
Calculating Break-Even in Units ............................................................................................ 453
Calculating Break-Even in Sales ............................................................................................ 453
Calculating Break-Even in Sales Dollars with a Specified Level of Profit ............................... 454
Charting the Break-Even Point ............................................................................................. 455
Choosing the Chart Type ....................................................................................................... 457
Making Assumptions in Contribution Analysis ............................................................................ 459
Linear Relationships ............................................................................................................. 459
Assignment of Costs ............................................................................................................. 460
Constant Sales Mix ............................................................................................................... 460
Worker Productivity .............................................................................................................. 461
Determining Sales Mix ................................................................................................................ 461
20 Pricing and Costing ..................................................................................465
Using Absorption and Contribution Costing ................................................................................ 466
Understanding Absorption Costing ....................................................................................... 466
Understanding Contribution Costing .................................................................................... 472
Applying the Contribution Approach to a Pricing Decision ................................................... 475
Using Contribution Analysis for New Products ............................................................................ 477
Allocating Expenses to Product Lines ................................................................................... 479
Varying the Inputs ................................................................................................................ 480
Estimating the Effect of Cross-Elasticity ...................................................................................... 481
Glossary .......................................................................................................485
TOC, 9780789743176, 5/12/10
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