All financial functions in excel

Microsoft Excel is the most important tool of  Investment Bankers Investment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read moreand Financial Analysts. They spent more than 70% of the time preparing Excel Models, formulating Assumptions, Valuations, Calculations, Graphs, etc. It is safe to assume that Investment bankers are masters in excel shortcuts and formulas. Though there are more than 50+ Financial Functions in Excel, here is the list of Top 15 financial functions in excel that are most frequently used in practical situations.

Without much ado, let’s have a look at all the financial functions one by one –

#1 – Future Value (FV): Financial Function in Excel 

If you want to find out the future value of a particular investment which has a constant interest rate and periodic payment, use the following formula –

FV (Rate, Nper, [Pmt], PV, [Type])

• Rate = It is the interest rate/period
• Nper = Number of periods
• [Pmt] = Payment/period
• PV = Present Value
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

FV Example

A has invested the US $100 in 2016. The payment has been made yearly. The interest rate is 10% p.a. What would be the FV in 2019?

Solution: In excel, we will put the equation as follows –

= FV (10%, 3, 1, – 100)

= US $129.79

#2 – FVSCHEDULE: Financial Function in Excel 

This financial function is important when you need to calculate the future valueThe Future Value (FV) formula is a financial terminology used to calculate cash flow value at a futuristic date compared to the original receipt. The objective of the FV equation is to determine the future value of a prospective investment and whether the returns yield sufficient returns to factor in the time value of money.read more with the variable interest rateVariable interest rate refers to a mortgage or loan interest rate that fluctuates with the market conditions. The interest levied on variable loans depends on the reference or benchmark rate—an index.
read more. Have a look at the function below –

FVSCHEDULE = (Principal, Schedule)

• Principal = Principal is the present value of a particular investment
• Schedule = A series of interest rate put together (in case of excel, we will use different boxes and select the range)

FVSCHEDULE Example:

M has invested the US $100 at the end of 2016. It is expected that the interest rate will change every year. In 2017, 2018 & 2019, the interest rates would be 4%, 6% & 5% respectively. What would be the FV in 2019?

Solution: In excel, we will do the following –

= FVSCHEDULE (C1, C2: C4)

= US $115.752

#3 – Present Value (PV): Financial Function in Excel 

If you know how to calculate FV, it’s easier for you to find out PV. Here’s how –

PV = (Rate, Nper, [Pmt], FV, [Type])

• Rate = It is the interest rate/period
• Nper = Number of periods
• [Pmt] = Payment/period
• FV = Future Value
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

PV Example:

The future value of an investment in the US $100 in 2019. The payment has been made yearly. The interest rate is 10% p.a. What would be the PV as of now?

Solution: In excel, we will put the equation as follows –

= PV (10%, 3, 1, – 100)

= US $72.64

#4 – Net Present Value (NPV): Financial Function in Excel 

Net Present Value is the sum total of positive and negative cash flowsNegative cash flow refers to the situation when cash spending of the company is more than cash generation in a particular period under consideration. This implies that the total cash inflow from the various activities under consideration is less than the total outflow during the same period.read more over the years. Here’s how we will represent it in excel –

NPV = (Rate, Value 1, [Value 2], [Value 3]…)

• Rate = Discount rate for a period
• Value 1, [Value 2], [Value 3]… = Positive or negative cash flows
• Here, negative values would be considered as payments, and positive values would be treated as inflows.

NPV Example

Here is a series of data from which we need to find NPV –

Details	In US $
Rate of Discount	5%
Initial Investment	-1000
Return from 1st year	300
Return from 2nd year	400
Return from 3rd year	400
Return from 4th year	300

Find out the NPV.

Solution: In Excel, we will do the following –

=NPV (5%, B4:B7) + B3

= US $240.87

Also, have a look at this article – NPV vs IRRThe Net Present Value (NPV) method calculates the dollar value of future cash flows which the project will produce during the particular period of time whereas the internal rate of return (IRR) calculates the profitability of the project.read more

#5 – XNPV: Financial Function in Excel 

This financial function is similar to the NPV with a twist. Here the payment and income are not periodic. Rather specific dates are mentioned for each payment and income. Here’s how we will calculate it –

XNPV = (Rate, Values, Dates)

• Rate = Discount rate for a period
• Values = Positive or negative cash flows (an array of values)
• Dates = Specific dates (an array of dates)

XNPV Example

Here is a series of data from which we need to find NPV –

Details	In US $	Dates
Rate of Discount	5%
Initial Investment	-1000	1st December 2011
Return from 1st year	300	1st January 2012
Return from 2nd year	400	1st February 2013
Return from 3rd year	400	1st March 2014
Return from 4th year	300	1st April 2015

Solution: In excel, we will do as follows –

=XNPV (5%, B2:B6, C2:C6)

= US$289.90

#6 – PMT: Financial Function in Excel 

In excel, PMT denotes the periodical payment required to pay off for a particular period of time with a constant interest rate. Let’s have a look at how to calculate it in excel –

PMT = (Rate, Nper, PV, [FV], [Type])

• Rate = It is the interest rate/period
• Nper = Number of periods
• PV = Present Value
• [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

PMT Example

The US $1000 needs to be paid in full in 3 years. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PMT.

Solution: In excel, we will calculate it in the following manner –

= PMT (10%, 3, 1000)

= – 402.11

#7 – PPMT: Financial Function in Excel 

It is another version of PMT. The only difference is this – PPMT calculates payment on principal with a constant interest rate and constant periodic payments. Here’s how to calculate PPMT –

PPMT = (Rate, Per, Nper, PV, [FV], [Type])

• Rate = It is the interest rate/period
• Per = The period for which the principal is to be calculated
• Nper = Number of periods
• PV = Present Value
• [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

PPMT Example

The US $1000 needs to be paid in full in 3 years. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the PPMT in the first year and second year.

Solution: In excel, we will calculate it in the following manner –

1^st year,

=PPMT (10%, 1, 3, 1000)

= US $-302.11 

2^nd year,

=PPMT (10%, 2, 3, 1000)

= US $-332.33

#8 – Internal Rate of Return (IRR): Financial Function in Excel 

To understand whether any new project or investment is profitable or not, the firm uses IRR. If IRR is more than the hurdle rateThe hurdle rate in capital budgeting is the minimum acceptable rate of return (MARR) on any project or investment required by the manager or investor. It is also known as the company’s required rate of return or target rate.read more (acceptable rate/ average cost of capital), then it’s profitable for the firm and vice-versa. Let’s have a look, how we find out IRR in excel –

IRR = (Values, [Guess])

• Values = Positive or negative cash flows (an array of values)
• [Guess] = An assumption of what you think IRR should be

IRR Example

Here is a series of data from which we need to find IRR –

Details	In US $
Initial Investment	-1000
Return from 1st year	300
Return from 2nd year	400
Return from 3rd year	400
Return from 4th year	300

Find out IRR.

Solution: Here’s how we will calculate IRR in excelThe internal rate of return, or IRR, calculates the profit generated by a financial investment. IRR is a built-in function in Excel that calculates the IRR using a range of values as an input and an estimate value as the second input.read more –

= IRR (A2:A6, 0.1)

= 15%

#9 – Modified Internal Rate of Return (MIRR): Financial Function in Excel 

The Modified Internal Rate of Return is one step ahead of the Internal Rate of Return. MIRR signifies that the investment is profitable and is used in business. MIRRMIRR or Modified Internal Rate of Return refers to the financial metric used to assess precisely the value and profitability of a potential investment or project. It enables companies and investors to pick the best project or investment based on expected returns. It is nothing but the modified form of the Internal Rate of Return (IRR).read more is calculated by assuming NPV as zero. Here’s how to calculate MIRR in excelMIRR or (modified internal rate of return) in excel is an in-build financial function to calculate the MIRR for the cash flows supplied with a period. It takes the initial investment, interest rate and the interest earned from the earned amount and returns the MIRR.read more –

MIRR = (Values, Finance rate, Reinvestment rate)

• Values = Positive or negative cash flows (an array of values)
• Finance rate = Interest rate paid for the money used in cash flowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more
• Reinvestment rate = Interest rate paid for reinvestment of cash flows

MIRR Example

Here is a series of data from which we need to find MIRR –

Details	In US $
Initial Investment	-1000
Return from 1st year	300
Return from 2nd year	400
Return from 3rd year	400
Return from 4th year	300

Finance rate = 12%; Reinvestment rate = 10%. Find out IRR.

Solution: Let’s look at the calculation of MIRR –

= MIRR (B2:B6, 12%, 10%)

= 13%

#10 – XIRR: Financial Function in Excel 

Here we need to find out IRR, which has specific dates of cash flow. That’s the only difference between IRR and XIRRIRR function determines the internal rate of return on the cash flows after considering the discount rate and evaluates the return on investment over some time. In contrast, the XIRR function is the extended internal rate of return that considers cash flows and discount rates to measure the return accurately.read more. Have a look at how to calculate XIRR in excelThe XIRR function, also known as the Extended Internal Rate of Return function in Excel, is used to calculate returns based on multiple investments made for a series of non-periodic cash flows.read more financial function –

XIRR = (Values, Dates, [Guess])

• Values = Positive or negative cash flows (an array of values)
• Dates = Specific dates (an array of dates)
• [Guess] = An assumption of what you think IRR should be

XIRR Example

Here is a series of data from which we need to find XIRR –

Details	In US $	Dates
Initial Investment	-1000	1st December 2011
Return from 1st year	300	1st January 2012
Return from 2nd year	400	1st February 2013
Return from 3rd year	400	1st March 2014
Return from 4th year	300	1st April 2015

Solution: Let’s have a look at the solution –

= XIRR (B2:B6, C2:C6, 0.1)

= 24%

#11 – NPER: Financial Function in Excel 

It is simply the number of periods one requires to pay off the loan. Let’s see how we can calculate NPER in excelNPER, commonly known as the number of payment periods for a loan, is a financial term and an inbuilt financial function in Excel that can be used to calculate NPER for any loan. This formula takes rate, payment made, present value and future value as input from a user.read more –

NPER = (Rate, PMT, PV, [FV], [Type])

• Rate = It is the interest rate/period
• PMT = Amount paid per period
• PV = Present Value
• [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)

NPER Example

US $200 is paid per year for a loan of US $1000. The interest rate is 10% p.a. and the payment needs to be done yearly. Find out the NPER.

Solution: We need to calculate NPER in the following manner –

= NPER (10%, -200, 1000)

= 7.27 years

#12 – RATE: Financial Function in Excel 

Through the RATE function in excelRate function in excel is used to calculate the rate levied on a period of a loan. The required inputs for this function are number of payment periods, pmt, present value and future value.read more, we can calculate the interest rate needed to pay off the loan in full for a given period of time. Let’s have a look at how to calculate RATE financial function in excel –

RATE = (NPER, PMT, PV, [FV], [Type], [Guess])

• Nper = Number of periods
• PMT = Amount paid per period
• PV = Present Value
• [FV] = An optional argument which is about the future value of a loan (if nothing is mentioned, FV is considered as “0”)
• [Type] = When the payment is made (if nothing is mentioned, it’s assumed that the payment has been made at the end of the period)
• [Guess] = An assumption of what you think RATE should be

RATE Example

US $200 is paid per year for a loan of US $1000 for 6 years, and the payment needs to be done yearly. Find out the RATE.

Solution:

= RATE (6, -200, 1000, 0.1)

= 5%

#13 – EFFECT: Financial Function in Excel 

Through the EFFECT function, we can understand the effective annual interest rate. When we have the nominal interest rate and the number of compounding per year, it becomes easy to find out the effective rate. Let’s have a look at how to calculate EFFECT financial function in excel –

EFFECT = (Nominal_Rate, NPERY)

• Nominal_Rate = Nominal Interest Rate
• NPERY = Number of compounding per year

EFFECT Example

Payment needs to be paid with a nominal interest rateNominal Interest rate refers to the interest rate without the adjustment of inflation. It is a short term interest rate which is used by the central banks to issue loans.read more of 12% when the number of compounding per year is 12.

Solution:

= EFFECT (12%, 12)

= 12.68%

#14 – NOMINAL: Financial Function in Excel 

When we have an effective annual rate and the number of compounding periods per year, we can calculate the NOMINAL rate for the year. Let’s have a look at how to do it in excel –

NOMINAL = (Effect_Rate, NPERY)

• Effect_Rate = Effective annual interest rate
• NPERY = Number of compounding per year

NOMINAL Example

Payment needs to be paid with an effective interest rateEffective Interest Rate, also called Annual Equivalent Rate, is the actual rate of interest that a person pays or earns on a financial instrument by considering the compounding interest over a given period.read more or annual equivalent rate of 12% when the number of compounding per year is 12.

Solution:

= NOMINAL (12%, 12)

= 11.39%

#15 – SLN: Financial Function in Excel 

Through the SLN function, we can calculate depreciation via a straight-line method. In excel, we will look at SLN financial function as follows –

SLN = (Cost, Salvage, Life)

• Cost = Cost of an asset when bought (initial amount)
• Salvage = Value of asset after depreciation
• Life = Number of periods over which the asset is being depreciated

SLN Example

The initial cost of machinery is US $5000. It has been depreciated in the Straight Line MethodStraight Line Depreciation Method is one of the most popular methods of depreciation where the asset uniformly depreciates over its useful life and the cost of the asset is evenly spread over its useful and functional life. read more. The machinery was used for 10 years, and now the salvage value of the machinerySalvage value or scrap value is the estimated value of an asset after its useful life is over. For example, if a company’s machinery has a 5-year life and is only valued $5000 at the end of that time, the salvage value is $5000.read more is the US $300. Find depreciation charged per year.

Solution:

= SLN (5000, 300, 10)

= US $470 per year

You may also look at Depreciation Complete GuideDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year.
read more

Top 15 Financial Functions in Excel Video

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