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20
Jun

Essential Financial Functions In Excel For Accounting Professionals

Summary: In this article, we'll look at four essential financial functions available in Excel. These are Future Value, Present Value, Net Present Value, and Payment.

Among Investment Bankers and Financial Analysts, Microsoft Excel is the most important tool. Over 70 percent of their time was spent preparing Excel models, formulating assumptions, valuing things, doing calculations, and creating graphs.

If you're a finance professional or an accountant, you should be familiar with these Excel formulas. Get familiar with four of the financial functions in Excel 2010; Present Value, Future Value, Net Present Value, and Payment.

Here we go, one by one, through all the financial functions -

Present Value:

An expected future cash flow stream is measured by its present value (PV). You can calculate the PV fairly easily with Excel.

A stream of cash flows has a present value (PV) that represents its current value.

From stocks and bonds to real estate, PV analysis can value a variety of assets.

Neither PMT nor FV must be omitted if FV is omitted, but both can be included.

NPV is different from PV as it considers the initial investment amount. 

How to calculate PV in Excel?

PV (Present Value)=PV(RATE, NPER, PMT, [PV], [TYPE])

Future value

In financial planning, future value (FV) represents the value of an asset in future years. FV, then, is a measure of how much a particular amount of money will be worth at a particular time.

Generally, the calculation of FV is based on a projected growth rate. In an interest-bearing account, the future value of the money can be determined quickly. However, due to a volatile rate of return, it might be difficult to calculate the FV of investments in stocks, bonds, and other securities.

As a result, Microsoft Excel has a built-in function that does the math for you based on your input.

Future value = FV (RATE, NPER, PMT, [PV], [TYPE])

RATE = Interest rate per period

NPER = Number of payment periods

PMT = The Amount paid (if omitted—it’s assumed to be 0, and FV must be included)

[FV] = Future value (if omitted—it’s assumed to be 0, and PMT must be included)

[TYPE] = [optional] When payments are due. 0 = end of period, 1 = beginning of period. Default is 0.

Net Present Value

An important component of corporate budgeting is the net present value (NPV). The calculation helps determine whether or not a project is financially viable.

Companies can determine a potential project's financial viability by looking at net present value (NPV).

It is especially beneficial when comparing more than one potential investment or project.

Corporate budgeting relies on NPV.

Instead of calculating NPV manually, you can use Excel.

Projects with a negative NPV forecast loss. Projects with a zero NPV forecast profit.

How to calculate the present value (PV) for a single cash flow?

NPV = (Today’s value of expected future cash flows) – (Today’s value of invested cash)

Where:

R – discount or interest rate

I – the cash flow period

Payment Function: PMT

Using the PMT function in Excel, you can calculate the loan's periodic payment. For example, using the PMT function, you can compute payments for a loan based on the loan amount, Number of payments, and interest rate.

Payment Function =PMT (RATE, NPER, PMT, [PV], [TYPE])

If you are an accountant, tax professional, or financer, Future Value, Present Value, Net Present Value, and Payment can be helpful for you. At Excel Platform, professionals can learn more about these financial functions available in Excel.

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