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Business Analysis: Microsoft Excel 2010

Business Analysis: Microsoft Excel 2010

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Description

  • Copyright 2010
  • Pages: 528
  • Edition: 1st
  • eBook (Watermarked)
  • ISBN-10: 0-13-262935-6
  • ISBN-13: 978-0-13-262935-5

ANSWER KEY BUSINESS QUESTIONS

CONTROL COMPANY FINANCES

FORECAST SALES

PREPARE BUSINESS CASES

MAKE BETTER INVESTMENT DECISIONS

IMPROVE QUALITY

USE EXCEL 2010 TO GAIN DEEPER INSIGHTS, MAKE SMARTER DECISIONS, AND EARN MORE PROFITS

Using real-world examples, Carlberg helps you put Excel’s features and functions to work and get the power of quantitative analysis behind your management decisions.

Excel expert Conrad Carlberg shows how to use Excel 2010 to perform the core financial tasks every manager and entrepreneur must master: analyzing statements, planning and controlling company finances, making investment decisions, and managing sales and marketing. Using real-world examples, Carlberg helps you get the absolute most out of Excel 2010’s newest features and functions. Along the way, you’ll discover the fastest, best ways to handle essential tasks ranging from importing business data to analyzing profitability ratios.

Becoming an Excel expert has never been easier! You’ll find crystal-clear instructions, insider insights, complete step-by-step projects, and more. It’s all complemented by an extraordinary set of web-based resources, from sample journals and ledgers to business forecasting tools.

• Use Excel analysis tools to solve problems throughout the business

• Build and work with income statements and balance sheets

• Value inventories and current assets, and summarize transactions

• Calculate working capital and analyze cash flows

• Move from pro formas to operating budgets that help guide your management decisions

• Prepare business cases incorporating everything from discount rates to margin and contribution analysis

About MrExcel Library: Every book in the MrExcel Library pinpoints a specific set of crucial Excel skills, and presents focused tasks and examples for performing them rapidly and effectively. Selected by Bill Jelen, Microsoft Excel MVP and mastermind behind the leading Excel solutions
website MrExcel.com, these books will:

• Dramatically increase your productivity–saving you 50 hours a year, or more

• Present proven, creative strategies for solving real-world problems

• Show you how to get great results, no matter how much data you have

• Help you avoid critical mistakes that even experienced users make

Sample Content

Table of Contents

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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