Spreadsheets in Finance and Forecasting Week 4: Using Formulae

Spreadsheets in Finance and Forecasting

Week 4:Using Formulae

Working with Formulae In previous weeks we have seen that

we can work with cell formulae to calculate totals, averages and other summary values, and can keep running totals of transactions.

This week we explore this further, and look in depth at the processes behind formulae

Objectives for Week 4 After working through the materials

for this week you will be able to: Work confidently with spreadsheet

formulae Understand and work with operator

precedence Use absolute and relative addresses

and range names

Following the Slides When you see this You will need to open

the spreadsheets referred to in the slides

Switch between the slides and the spreadsheet to follow the examples

ActionPoint!

Flower Shop Example The next few

examples use Flower Sales.xls

This is a simple spreadsheet which carries out a number of calculations of sales and profits

ActionPoint!

Floral Arrangements

Floral Arrangements Price QuantityLarge £35.99 37Medium £19.99 48Small £12.99 15

The Florist sells three different sizes of flower arrangement large, medium, small

The first task is to calculate the total sales income for each type.

Large Florals: Sales

How can we work out the total sales

here?

Large Florals: Sales

Enter the cell formula:

=B5*C5

Medium and Small Florals

Use Auto fill and check the

cell entries

Cell entries are:

=B6*C6

=B7*C7

Pot Plants: Profits

There are three types of pot plants: Chrysanthemums, Violets, Cyclamen

The task here is to calculate, for each of these the total profit for each type of plant

Pots Bought for Sold at NumberChrysanthemums £0.50 £1.99 43Violets £0.75 £2.49 23Cyclamen £1.25 £3.99 48

The Flower Shop Spreadsheet

How can we work out the Total Profit

here?


Cell Contents:

=(C10- B10)*D10

Now use auto fill to complete these cells

Special Events From their stock of flowers and shrubs, the

company hires out materials and celebration banners for special events such as weddings, birthdays and anniversaries.

The third task is to calculate the total hire charges for the special event below:

Special Events Small Shrubs Palms Flowers BannersNumber 35 42 105 24Hire Charges £10.99 £9.99 £4.50 £3.50


What is the formula for working out the Total Hire Charges

for the Special Event?


Formula:

=B15*B16 + C15*C16 + D15*D16 + E15*E16

Operations In the previous

example we saw calculations being carried out on cell addresses using a formula

Such formulae rely on mathematical conventions

Arithmetic Operations Excel calculates the

results by using the rules of arithmetic

The table right shows the arithmetic operations that can be used and the symbols that represent them

Operator Performs Example

+ Add =A1 + B1

- Subtract =A1 - B1

* Multiply =A1 * B1

/ Divide =A1 / B1

^ Power =A1^3

Operator Precedence In the flower shop

examples we used operations and bracketing

To use this consistently, we need to clarify the order in which calculations are to be done.

Operator precedence uses the BIDMAS rule

B Calculate within the brackets

I Calculate Indices and powers

D Divide

M Multiply

A Add

S Subtract

ExampleThe cell contents are:

A2: 3.2 A3: 4.8 A4: 1.5 A5: 4.8

Suppose that the formula in cell A6 is:

=(A2+A3)^2 +3*A4 –A5/2

Calculate the value in cell A6.

Calculation Example=(A2+A3)^2 + 3*A4 – A5/2

Brackets: (A2 + A3) is (3.2+4.8) = 8.0Indices: (A2+A3)^2 is 8.0^2 = 64Division: A5/2 is 4.8/2 =2.4Multiplication: 3*A4 is 3 x 1.5 =4.5Addition: (A2+A3)^2 + 3*A4 is 64 + 4.5 =68.5Subtraction (A2+A3)^2 + 3*A4 – A5/2 is 68.5 – 2.4 = 66.1

Calculations Example The spreadsheet

calculations.xls is a simple spreadsheet which will give you practice at constructing formulae

ActionPoint!

Calculations Spreadsheet

This spreadsheet asks you to calculate a number of different values by using the

cell references

SolutionsAdd X to Y and multiply the result by V

Subtract V from W and Subtract Y from Z. Multiply the results together.

Add 10 lots of W to 5 times the total of X , Y and Z

Calculate the 4th power of the sum of X and Y, and divide it by Z squared

40

8

220

625

=(F4+G4)*D4

=(E4-D4)*(H4-G4)

=10*E4+5*(F4+G4+H4)

=(F4+G4)^4/H4^2

What happens when you copy and paste formulae? In the next few

slides we look at how the cell addresses change when they are copied into different locations

Cell Referencing A cell may be

referenced in one of four ways: An Absolute Address A Relative Address A Mixed Address Range Name

Absolute Addressing Absolute addressing

means that we always want that part of the formula to use that particular cell.

For example:

Multiply A5 by 3: $A$5 * 3

Sum all the values in a block Sum($A$1:$C$2)

When copied, this formula will

always refer to cell A5

When copied, this formula will

always refer to the block of cells:

A1, B1, C1, A2, B2, C2

Relative AddressingCopying CellAddress K9

K9 Q9

R13K14

When copied a relative address will change, depending upon

where it is put

Copy it along, and the column will change

Copy it down and the row will change

Copy it diagonally and both row and column

will change

Mixed Addressing We can relax part of

the absolute address

We can use this to:

Fix a Column: $B3 + 10

Fix a Row: A$5 + 20

When copied this formula will always refer to a cell

in column B

When copied this formula will always refer to cell in row 5

Using Range Names It is possible to label a particular cell

with a name, which can then be used in functions and formulae.

This cell D1 can be labelled as

“depreciation”

Click in this box here to change the D1 to

depreciation, then press the return key

Using Range Names Using the label we have created, we

can use this as an absolute cell reference; it will not change if we copy or paste using it in a formula

This cell can now be referred to as “depreciation”

In this cell, we type in:

=depreciation,

and press the return key

Exploring Copy and Paste In the next few

examples we will carry out some simple financial calculations

Each time we will enter some formulae, then copy and paste these formulae to carry out the calculations in later cells

Depreciation Example The spreadsheet

depreciation.xls looks at the following problem:

Suppose you paid £5000 for a car at the end of 1999; what would the car be worth in 2010?

ActionPoint!

The Depreciation Spreadsheet

Car Depreciation Depreciation Rate: 10%

Year Depreciation Amount Value of the Car

£5,000.0020002001200220032004200520062007200820092010

Initial Value of the Car

What we need to do is to put formulae in the cells, so that we end up with

our answer here!

In our example, the car will lose 10% of its current value year on year

The Depreciation Spreadsheet



£5,000.0020002001200220032004200520062007200820092010


Cells have been labelled with “post-its”;

Read these to find out what to put in the cells

The first thing to do is to re-label cell D1 as depreciation



£5,000.002000 10% £500.00 £4,500.002001200220032004


Depreciation Solution

=D4-C5=depreciation = D4 * B5

The first line of the solution is:

Depreciation: Full SolutionCar Depreciation Depreciation Rate: 10%


£5,000.002000 10% £500.00 £4,500.002001 10% £450.00 £4,050.002002 10% £405.00 £3,645.002003 10% £364.50 £3,280.502004 10% £328.05 £2,952.452005 10% £295.25 £2,657.212006 10% £265.72 £2,391.482007 10% £239.15 £2,152.342008 10% £215.23 £1,937.102009 10% £193.71 £1,743.392010 10% £174.34 £1,569.05


When all the cell calculations are

pasted down, the answer appears here

Auditing Formulae Sometimes a

formula does not quite give you the answer that you wanted.

In this case you can use the auditing tools to check where the answer has originated

The Auditing Tools

Click on Tools

then Auditing

and Auditing Toolbar

ActionPoint!

Auditing a Spreadsheet

The first and third icons on the toolbar are

Trace precedents and Trace Dependents

Tracing Precedents

Click on cell B5 .

Now click Trace Precedents on the toolbar

The blue arrow shows that cell B5 is taking information from cell D1

Tracing DependentsWhen you click on Trace Dependents,

the arrow leads to cell C5

This is because C5 uses information from B5

More RelationshipsBy clicking on the Trace Dependents button repeatedly, you can track how the information passes from cell to cell

Further Challenge To extend your

understanding of formulae, the next part of this presentation looks at copying and pasting across rows and down columns

It uses both relative and absolute addressing

Throwing Dice The Dice.xls

Spreadsheet sets you this challenge:

Two fair dice are thrown. Create a table to show all possible sums of the two values

Throwing Dice

+ 1 2 3 4 5 6

1

2

3

4

5

6

ActionPoint!

Throwing Dice In order to get you to

think about relative and absolute cell addressing,

You are only allowed to write one formula, and that must be in the top left cell

All the others must be copied and pasted from this initial cell.

Throwing Dice

+ 1 2 3 4 5 6

1

2

3

4

5

6

Throwing Dice- Solution We needed to add

cells B4 and C5 However, we want to

add C4 to all the cells in the C column, so we fix the 4, and use C$4

Also we want to add B5 to all the cells in row 5, so we fix the B and use $B5

Throwing Dice

+ 1 2 3 4 5 6

1

2

3

4

5

6= C$4 + $B5

Examining the Solution Copying and

pasting that initial cell gives the following:

If you examine the final cell you will see how the formula has been modified

Throwing Dice

+ 1 2 3 4 5 6

1 2 3 4 5 6 7

2 3 4 5 6 7 8

3 4 5 6 7 8 9

4 5 6 7 8 9 10

5 6 7 8 9 10 11

6 7 8 9 10 11 12

= H$4 + $B10

Savings and Loans As a final example,

look at savings and loans.xls

This spreadsheet calculates interest on savings, loan repayments and mortgages.

You will need to work out the formulae

ActionPoint!

Follow-Up work Portfolio Task 2

now takes you through a scenario in which you create portfolios of shares to maximise your return on investment.

Documents

Spreadsheets in Finance and Forecasting Week 4: Using Formulae