What makes a good financial model?
A financial model is a tool to forecast a business’s financial performance in the future. The forecast is typically based on the company’s historical performance and assumptions about the future. Besides, it requires to prepare the information from an Income Statement, Balance Sheet, Cash Flow Statement, and supporting schedules.
A financial model is usually it’s built-in MS Excel. So, being good at modeling means being outstanding in Excel. But also to have a good knowledge of accounting and corporate finance.
In our article “Financial Modeling Best Practices” we discuss what makes a good financial model:
- Well structured with a good layout.
- Easy to follow and understand.
- Drivers and assumptions clearly laid out.
- Simplicity over complexity.
Following this guidance, you will build a great model. It would be easy to audit and understand by others.
This article will give you the best five auditing tools for a built-in financial model in Excel. In addition, you will be able to review your own or someone else’s models.
Auditing tools in Excel
1. Checking formula in the cell
Excel shortcut for that is F2 (Function 2 on your keyboard).
2. Checking all formulas on the spreadsheet
Excel shortcut for that is Ctrl + `.
3. Tracing precedents and dependents for the cell
In this case, the Excel shortcut for tracing precedents is Alt M P.
To remove arrows, use the following Excel shortcut Alt M A A.
The Excel shortcut for tracing dependents is Alt M D.
4. Checking links
Excel shortcut for that is Ctrl + [.
Now let’s come back to the previous cell in one click. Excel shortcut for that is F5, Enter.
5. Working with comments.
It is important to include comments in your financial model. You should explain why and from where you would derive some numbers. Besides, you should be able to explain some difficult calculations. So, when coming back to your model, you understand it easily. Users will find it easy to follow.
Excel shortcut to insert and show the comment is Shift+F2.
We showed you the top five auditing tools for financial models in Excel for reviewing your own or somebody else’s model. There is so much more you can do in Excel to build financial models quickly and efficiently. Learn Excel Efficiency and Financial Modeling by playing educational games with keySkillset.