A few basic rules in financial modeling (1/3)
Nov, 19, 2015
An impeccable layout enables a better understanding of financial data and eases the appropriation of complex models by any user.
The clearer the better
It is important to pay attention to format at each step of the creation of your model:
- Tables, charts and workbooks must have a title ;
- Number formats must be optimized to enhance their readability (units, number of decimal, negative numbers’ format…);
- Heights (and width) of rows (and columns) must be adapted ;
- Printing areas and settings must be defined.
Organize your model’s data
The goal is not to make it the most compact possible by using long formulas – it’s quite the opposite actually! The model needs to be clear, thus it has to be as much decomposed as possible so that anyone can understand easily the construction behind a figure. Basic rules for that are:
- Each hypothesis must be directly readable in a cell (therefore only one hypothesis for each cell) ;
- Keep your model dynamic by never using “hard” figures in your formulas (you should instead write them in a cell along hypothesis data, and mention the cell in the formula)
- Differentiate cells from a tab based on their content :
- A different background color can be used to highlight hypothesis or inputs ;
- A different typo color can also be used ;
- Cells containing formulas should be locked ;
- For complex models, (e.g. financing projects), you should separate hypothesis, calculations and results in different workbooks.
Read the second article of basic rules in financial modeling
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