Awards
Join OfficeTipsAndMethods

Have some suggestions to share with the world?

Join OfficeTipsAndMethods and share your insight in a Comment. You must be a member to comment and all comments are moderated before being published. Membership is free and we would never share your personal information with anyone.

Become an OTM Member

Log In

YouTube Video Channel
OfficeFix
Article Categories

Excel Financial Functions–Calculating IRR for Irregular Cashflows

This week, in the final article of this series, guest blogger Nick Williams discusses calculating the Internal Rate of Return for an irregular cashflow. Nick is an Access tutor based in the U.K.

XIRR – Internal Rate Of Return

XIRR function returns the value for an Internal Rate Of Return for a supplied series of cash flows, set of values. The key difference between IRR and XIRR is that XIRR can deal with cashflows that aren’t evenly spaced. Because it can deal with cashflows that aren’t evenly spaced you need to tell is both the series of cashflows and also the dates of each cashflow.

The syntax of the XIRR function in Excel is XIRR (values, dates, [guess])

values is a required parameter. It is an array or reference to a set of cells that contain the cash flow values.

dates is another required parameter, it is a series of dates. You need to have a date that corresponds to each cash flow for the calculation to run. The first date is the date of the investment/loan, and subsequent dates refer to income values.

guess is an optional parameter, and works as it does for IRR. Again, if this parameter is omitted, it is set to 0.1 (10%) by default

Continuing with our previous example, let’s introduce dates into our cash flow set.

We now have dates for the initial investment, and irregular dates of actual and/or forecasted income over the seven years of the project.

clip_image001clip_image003clip_image005

As we would expect, as the returns come sooner on this project the return on it has gone up, when compared with our previous calculation.

If we entered dates that were exactly one year apart for each of the cashflows this would give an answer of 1.82%, the same answer as using the IRR function.

Again continuing with our previous example, lets we add more expected income and periods. Again as the returns come sooner the return on the project has increased when compared to have all of the cashflows spaced exactly one year apart.

clip_image007

WHAT TO DO IF YOUR CALCULATION RETURNS #num!

Microsoft Excel uses an iterative technique for calculating IRR AND XIRR starting from guess. If XIRR can’t find a result that works after 100 tries/iterations, the #NUM! error value is returned. If this happens, or if the result is not what you expected to see, try again with setting a different value for guess.

#NUM! error can also appear if:

1. there isn’t at least one positive and at least one negative value in the list of cashflows

2. any of the specified dates precede the first specified date

3. the specified dates and values arrays have different lengths

XIRR can also return a #VALUE! error if it cannot not recognize any of the specified dates as dates (e.g. you have the value of 20 among your dates array)

Excel Financial Functions–Calculating IRR

This week, guest blogger Nick Williams discusses calculating the Internal Rate of Return for a regular cashflow. Nick is an Access tutor based in the U.K.

IRR – Internal Rate Of Return

IRR returns an interest rate. It is the interest rate that would need to be applied to all of the cashflows in the calculation to give an NPV of zero for the project (see above). In short it tells you the return on the money invested in a project and is often used as an investment decision tool. It is designed to work with a set of regularly spaced cashflows only.

IRR is the same as interest rate of savings or loan, however there is it applied to a very straight forward situation.

The syntax of the IRR function in Excel is IRR(values, [guess])

values is a required parameter. It is an array or reference to a set of cells that contain the cash flow values for the project.

guess is an optional parameter. It is a number that you are guessing is close to the result of IRR. If this parameter is omitted, it is set to 0.1 (10%) by default.

Continuing with our example of above we can see the function in use below.

clip_image002clip_image003clip_image005

Intuitively we know that that is right. Above we discovered that the project had a negative NPV if we applied a 3% discount rate. Therefore we knew that the discount rate to get an NPV of zero had to be below 3%.

Again, as above, lets add two more years of income and see what happens to the result. We got a positive NPV using a 3% rate before so we know that the answer will be above 3% before we start.

clip_image007

Note: Microsoft Excel uses an iterative technique for calculating IRR starting from guess. If IRR can’t find a result that works after 20 tries/iterations, the #NUM! error value is returned. If this happens, or if the result is not what you expected to see, try again with setting a different value for guess.

Excel Financial Functions–Calculating NPV

We’d like to welcome back guest blogger Nick Williams. This week and for the next two weeks, Nick will be publishing a series of Excel financial calculation tutorials. Nick is an Access tutor based in the U.K.

One area where Excel is used extensively is in financial forecasting and modeling. It contains lots of financial formulas which can save hours of time.

As ever the trick is to give Excel the right data in the right way … and then let it do the work for you.

In this article we’re going to have a quick look at three of the basic formulas that Excel has in its kit bag IRR, XIRR and NPV.

NPV – Net Present Value

The NPV returns a value amount. You insert all of the forecast cashflows (both investment and return) relating to a project and also your cost of capital. NPV will then tell you if the project will return a ‘profit’. Profit in this context is that it returns more than your cost of capital for the period that your capital is invested. Put the other way round the value of all of the projects future cashflows, today, is greater than nought.

The basis of the calculation is that a pound now is worth more than a pound in future. Your cost of capital (or discount rate) is the difference in value between a pound now and a pound in a year’s time.

To make this clearer a very simple illustration would be:

Imagine you are investing $10 today. You think that it will return $12 in one year’s time. You like to make at least 10% return on your money when it is invested so your cost of capital is 10%.

The net present value of the $12 today is $10.9 (=£11/(1+10%)) so the $12 in one year is worth more than the $10 today, meaning that you should invest as the project will earn you more than the 10% return that you need.

Syntax of the NPV function in Excel is NPV( rate, value1, [value2], [value3], … )

rate is a required parameter and is the discount rate or cost of capital over a single period.

value1, value2,… are values of future income (positive value) and/or payments (negative value). Value 1 is a required parameter and subsequent values are optional. You will need to put a value, even if it is zero, in for each period of the project.

Below is a more complex example. We have a $200,000 investment which returns different amounts each year for seven years.

We put the initial investment in cell B3. Initially we have the forecasted seven years of income in cells B4:B12. The cost of capital or annual discount rate is in cell B2.

After 7 periods our NPV is going to be:

clip_image001clip_image003clip_image005

If we add income for two additional periods, NPV is going to change:

clip_image007

Five Essential Excel Keyboard Shortcuts

Some keyboard shortcuts are designed to enhance your productivity in specific applications. Here are five that have long been my favourites in Excel.

 

<ctrl>;

Insert the current date. The inserted date will remain the same; it does not update when Excel recalculates formulas.

<shift><ctrl>:

Insert the current time. The inserted time will remain the same; it does not update when Excel recalculates formulas.

<ctrl>HOME

Move the selection to the beginning of the worksheet. Cell A1 becomes the active cell. Note: if freeze panes is in effect, the shortcut behaves a little differently, making the top left cell of the lower right quadrant active. If Row 1 contains the header of a structured table, <ctrl>HOME will select cell A2 rather than A1.

<ctrl>END

Selects the cell at the lower right corner of the portion of the worksheet that has actual contents.

F4

When entering formulas, make a cell reference absolute. Each time you press F4 when you are entering a formula the absolute reference changes from Absolute Cell or Range to Absolute Row/Relative Column to Absolute Column/Relative Row to Relative Cell or Range

Links for the technically inclined:

Announcing the Microsoft Cloud Roadshow

https://microsoftcloudroadshow.com/cities/?Wt.mc_id=dx_MVP400580

This is a free, two day technical training event for IT Professionals and Developers that provides best practices and insight from those who run cloud services across Office 365, Micros oft Azure, and Windows 10.

Developer Interview Series #1 –

The Power of Cross Platform Development with Universal Apps and Xamarin

https://channel9.msdn.com/Blogs/Case-Studies/The-Power-of-Cross-Platform-Development-with-Universal-Apps-and-Xamarin?WT.mc_id=dx_MVP400580

In this interview series, we bring you best practices, anecdotes, and insights from developers who are building creative solutions using Microsoft technologies.

We’re on the road to self-driving business applications

http://blogs.msdn.com/b/stevengu/archive/2015/09/09/we-re-on-the-road-to-self-driving-business-applications.aspx?WT.mc_id=dx_MVP400580

A blog by Steve “Guggs” Guggenheimer on self-driving ERP (Enterprise Resource Planning software)

Memory Compression in Windows 10 RTM

https://channel9.msdn.com/Blogs/Seth-Juarez/Memory-Compression-in-Windows-10-RTM?WT.mc_id=dx_MVP400580

The OS is doing some clever optimizations that allow your processes to trim some of the memory but not necessarily page it out to disk.

Managing hidden apps, beta apps and visibility of in-app purchases in Dev Center

http://blogs.windows.com/buildingapps/2015/09/10/managing-hidden-apps-beta-apps-and-visibility-of-in-app-purchases-in-dev-center/?WT.mc_id=dx_MVP400580

The unified Dev Center introduced several new options to manage the visibility of apps and in-app purchase.

Five Essential Keyboard Shortcuts

ShortcutTrying to learn keyboard shortcuts can be intimidating; there are just so many. Like most problems, however, you can overcome the problem by breaking it down to bite-sized chunks. So if you haven’t been using keyboard shortcuts, start by learning and using just these five. Chances once you have used them only a few times, they will become second nature. Remember that some keyboard shortcuts require a combination of keys. That means you press and hold the first (second, and third, in some cases) and tap the last. As you will see, frequently the key to use makes logical sense but sometimes it doesn’t.

<ctrl>A Select the entire document
<ctrl>X Cut the selected content or object(s)
<ctrl>C Copy the selected content or object(s)
<ctrl>V Paste what you have cut or copied
<ctrl>Z Undo the last action you did

These particular keyboard shortcuts (and many more, actually) have a consistent Beachmeaning throughout the Windows world. Whether you are working with a Word Document, an Excel Workbook, a PowerPoint Presentation, any other Office document, or Windows (File) Explorer, you use the same keyboard shortcuts.

Why bother learning these or other keyboard shortcuts? It’s all about time. To be sure, the time you save by using a keyboard shortcut once is insignificantly brief. But these shortcuts do things that you do frequently and repeatedly whenever you are working on your computer. Think of those tiny slivers of time as grains of sand on a beach. Save enough of them any you will have time for a beach vacation.

Links for the technically inclined:

Announcing the Biggest VM Sizes Available in the Cloud: New Azure GS-VM Series

http://weblogs.asp.net/scottgu/announcing-the-biggest-vm-sizes-available-in-the-cloud-new-azure-gs-vm-series?WT.mc_id=dx_MVP4000580

Important announcement in Azure space

 

Announcing VP9 support coming to Microsoft Edge

http://blogs.windows.com/msedgedev/2015/09/08/announcing-vp9-support-coming-to-microsoft-edge/?WT.mc_id=dx_MVP4000580

New feature for Microsoft Edge

 
 

Unity 5.2 and Visual Studio Tools for Unity 2.1

http://blogs.msdn.com/b/visualstudio/archive/2015/09/08/unity-5-2-and-visual-studio-tools-for-unity-2-1.aspx?WT.mc_id=dx_MVP4000580

Visual Studio is the new default Unity scripting editor on Windows

 

Announcing the Microsoft Azure Tour

http://azure.microsoft.com/en-us/blog/announcing-the-microsoft-azure-tour/?WT.mc_id=dx_MVP4000580

The Microsoft Azure Tour is a free one day technical training event for developers and IT professionals to help you achieve more success with Azure.

 

Visual Studio Code and Visual Studio Online

http://blogs.msdn.com/b/cdndevs/archive/2015/09/02/visual-studio-code-and-visual-studio-online.aspx?WT.mc_id=dx_MVP4000580

Blog on the integration with Git

 

Excel Function Key Shortcuts

I resisted learning and using keyboard shortcuts for more years than I care to admit. In recent years, however, I have come to appreciate just how valuable keyboard shortcuts can be in Excel and almost any other application you can name. The Blog ExcelTip has just published a detailed article about Function Key Shortcuts that is definitely worth a read if your are interested in expanding your shortcut key horizon.

Technical Education Opportunities

Microsoft AzureCon Virtual Event September 29

Join Live Q&As and interact with the architects and engineers who are building the latest features… 

.Net Native

What .NET Native means for Universal Windows Platform developers

 

Windows 10 Developer’s Guide

The latest Windows 10 developer training contents

Microsoft Edge and Internet Explorer 11

How Microsoft Edge and Internet Explorer 11 on Windows 10 work better together in the Enterprise

Evernote vs OneNote

Catherine Pope published this article, Evernote or OneNote – Which is Best?, today. In it she compares the two most popular notetaking applications. If you are trying to decide which is best for you, this article will be helpful.

Developing for Windows 10

The recent advent of Windows 10 has brought with it a wealth of development resources and tools.

At the top of the list, of course, is Visual Studio 2015. Click Visual Studio Downloads to download any of the Visual Studio skus.

You can find all the information you need to develop Windows 10 apps by following these links:

Microsoft Virtual Academy offers online courses for Windows 10 and there is some great content on Channel 9. Microsoft Virtual Academy also offered a Windows 10 Jumpstart on August 14th. This event has ended but an on demand version should be available soon.

Happy developing!

Recently on Channel 9

At the 2015 Microsoft MVP Virtual Conference (May 14-15) Crystal Long, Brent Spaulding, and Julian Kirkness presented an information packed session on Access, Access Web Apps, and connecting Access desktop applications to Azure servers.

Channel 9 is a Microsoft community site for Microsoft customers created in 2004. It has video channels, discussions, podcasts, screencasts and interviews with Microsoft. Wikipedia

If you are interested in expanding your knowledge and understanding of the power of Access, the video of this session is a must watch. In it you will see an introduction to data management using Access, a demonstration of a working Access Web app, and a tutorial on connection an Access Desktop frontend to a cloud-based Azure backend.