Learning Excel Vs. Relying On Financial Calculators

[mknaus]

m an organizational development consultant (work with strategic planning, system issues etc...). I recently took an assignment with a former bank loan officer. As we worked together, it became evident to him that I did not have many excel skills.
I actually had a team that I work with on assignments, such as these, and I am presented with the financial data,
which gives me a starting point on identifying what the company's issues are. The banker had expected that I know how to perform a number of financial calculations myself. I think he was testing me. Later, I learned he is very insecure and flaunts his financial skills to increase his self esteem. I really felt quite incompetent not knowing excel at his level. So, I decided to immerse myself in understanding excel. I was never good at math in high school or college and so I struggled with excel to some degree. However, after conducting some internet research, I came across a number of software packages that consisted of various financial tools based on excel.
One in particular, I think it was called the "Financial Advisor" contained over 70 widely used financial calculation tools. I began to play with them and found them very effective. My question to the group is: if these financial tools have already been developed by experts in finance, it is worth my time and effort to learn more about excel beyond the basics. If I am called upon to deal with complex financial issues, I work with CPA's and financial analysts? What is your opinion of these excel based calculators?

Thanks.
Dr. Michael Knaus

 

[NateO]

Hello and welcome to the board.

You might be getting a response from the wrong person... When you say Financial Calculator, I'm thinking of the TI-81 I used @ Indiana University to gamma hedge long positions on American-style call options.

Excel blows all of that out of the water, I haven't used a calculator at work, outside of simple 10-keying since College. Excel's great in that you can create standard templates and it's highly customizable. Having been the Quant guy in Mergers and Acquisitions, I could start with a base template, but as buying a company is never the same the next time around, we could customize our application. Excel's a lot of things to a lot of people, for me, first and foremost, it's a calculator on hardcore steriods.

The trick is two-fold though, you have to learn Excel and you really have to understand the underlying, Non-Excel science to what you're doing. It's a snap to whip up an NPV analysis, and it's useless if you don't know what that means from a Finance perspective.

I'm probably not your average animal in that I made a personal and professional choice to study both very extensively.

As for your pre-packaged, erm, packages. I suppose a lot of people use them and that's fine, I guess. But not for me, I don't necessarily know what went into them unless I audit the daylights out of it at which point I could probably build my own...

There, my self esteem is much better now!

 

[Antonio Toledo]

Excel is awesome in its flexibility. Truth is that if you understand the cores of NPV and risk analysis you can stretch your knowledge to great extents and shorten your workload.

If someone challenged me right now to do a risk assesment on a stocks returns, someone fluent in financials would probably: calculate standard deviations, key ratios like beta, jensens alpha and more.
I'd simply pull out one of the excel sheets I've previously created and draw a histogram/probability density curve in less than 30 seconds.

One fine aspect of excel compared to regular calculators packages is that you can build your own tools. When I learnt to value european options I created a simple worksheet that values them and draws their return curves. Makes life easier and gives you the freedom to create your own knowledge library for future reference.

 

[Smitty]

Welcome to the Board, Doc!

I certainly don't have the finance acumen as Mr. Oliver, but I do have 3 HP 12C's (one at home, one in my backpack and one at work), and I use them frequently, but generally only in meetings or where I don't have my PC handy.

Speaking to the actual hand-held calculator (which I realize wasn't your issue, but Nate brought it up), to me Excel is far more robust and versatile than any calculator. In fact, if you can think of something you want to do in it, it can probably be built. The other outstanding aspect is that you can save your models for later use, whereas on a calculator you have seriously limited options.

Speaking to "financial models" that you can build in Excel, I routinely build application or department specific calculators in Excel and find its flexibility and adaptability amazingly robust.

I think it's definitely worth knowing the ins and outs of Excel beyond what a newbie knows, especially from a consultative point of view. The more you know just adds to your ability to consult. For instance, our new company president is a CPA and was VP of Finance and Controller prior to that and his comment to my boss the other day regarding an Excel application we're arguing over was "I may not know as much about Excel as Smitty, but I'm not a novice". That from a guy who works with ONE aspect of Excel for a living.

There are multiple facets to Excel that merit more exploration (from my point of view ) to see where they can benefit your needs. You may find that Pivot Table analysis is hugely important to analyzing say a marketing campaign, but most CPA's will never touch one.

Just a few thoughts,

 

[Fazza]

Welcome, Michael, and thanks for the interesting thread.

I think there are two questions here.

1. How good is Exel and Excel based calculators. They are absolutelty first class. Assuming there are no errors in them! Which can happen

2. How much of the detail of Excel do you want/need to learn? Excel is very deep; one can spend many years learning about it and still have much to learn. You are best placed can answer this. From your question it sounds like you're interested but it also sounds to me like it is not necessary. It sounds like you are more of a project manager co-ordinating the work of others and maybe interpreting the results and doing strategic planning.

HTH. Regards, Fazza

 

[iliace]

If you have some time to devote to studying Excel, just get a book about using it for financial calculations, models, etc. You can find some extensive material, that will cover just about every basic and advanced aspect of Excel, but as relevant to your field.

Along these lines perhaps? This one I would recommend if you need to brush up on both finance and Excel:

http://www.amazon.com/Principles-Fi...bs_sr_1?ie=UTF8&s=books&qid=1210474059&sr=8-1


However, to use this material, you would be better off having at least some basic background in Excel. It depends on where you are now. I would imagine, at the very least, you need to know:

• Data entry and data types
• Working with screen views (multiple workbooks, etc)
• Summary functions (sum, average, etc)
• Financial functions (pmt, pv/fv, irr, etc)
• Lookup functions (match, vlookup, etc for working with data tables)
• Using PivotTables
• Using What-If analysis features (data tables, goal seek, scenarios, etc)
• Charting

Beyond that, you might find useful the Analysis Toolpak features (anything from the additional functions it provides to various statistical tools), and also the Solver gadget, which can be very powerful for optimization, if you know how to use it.

If you are weak in any of those areas, you might benefit from a video program, or a book again (I like books myself) - something like Excel Bible by John Walkenbach (which covers everything I mentioned above), or any of the beginners' products Mr. Excel has to offer (all over this site).

Hope this helps.

 

[Yogi Anand]

Hello Michael:

Welcome to Mr Excel Board!

Interesting question ... and you have received a number of responses. As has already been pointed out, yours appears to be a Manager's role. So let me use an analogy involving say the roles of an Engineer and Technician. Typically, an Engineer will have a well rounded overall perspective, and the Technician will be competent in a specific area -- so an Engineer may have several Technicians working with him.

Now, based on my analogy, your role will that be of an Engineer -- and you will be assisted by a number of Technicians, each one with an expertise in a specific area, and let us say in this case even in making relevant financial calculations. But in your role as the Engineer, you have a well rounded perspective which even all the Technicians put tgether may not be able to match. Agreed, you need to have decent knowledge of conducting financial calculations, and in today's environment, a well rounded knowledge of EXCEL as well, but whether you need to attain expertise in EXCEL as one of the Technicians, may not be essential -- unless it is your personal choice and preference.