Financial Formulas
Master essential Excel financial formulas to calculate loan payments, investment returns, depreciation, and other key financial metrics.
The Power of Financial Functions
Excel's financial functions help you make informed decisions about loans, investments, and business operations. Whether you're creating a personal budget, analyzing a potential investment, or managing corporate finances, these formulas provide the calculations you need without complex manual math.
Loan Payment Formula (PMT)
=PMT(B2/12,B3*12,B1)
This formula calculates the monthly payment for a loan with:
- B1 - Loan principal amount
- B2 - Annual interest rate (converted to monthly by dividing by 12)
- B3 - Loan term in years (converted to months by multiplying by 12)
The result will be a negative number, representing a payment that you make. If you want to display it as a positive value, simply put a negative sign in front of the formula: -PMT(B2/12,B3*12,B1)
Future Value (FV)
=FV(B2/12,B3*12,-B1)
Calculates the future value of an investment with regular payments. For example, how much money you'll have in your savings account after making regular deposits.
Present Value (PV)
=PV(B2/12,B3*12,-B1)
Calculates how much an investment is worth in today's dollars. Useful for determining if a future payout is worth a current investment.
Internal Rate of Return (IRR)
=IRR(B2:B8)
The IRR formula calculates the effective interest rate of an investment based on a series of cash flows:
- B2:B8 - A range of cash flows, where the first value is typically negative (the initial investment) and subsequent values are positive (returns)
IRR is one of the most powerful financial metrics for evaluating investment opportunities, providing a single percentage that represents the annualized return rate. Generally, a higher IRR indicates a more attractive investment.
Depreciation Formulas
Straight-Line (SLN)
=SLN(B1,B2,B3)
Calculates equal depreciation each year. Where B1 is cost, B2 is salvage value, and B3 is useful life.
Declining Balance (DB)
=DB(B1,B2,B3,B4,B5)
Calculates accelerated depreciation. Additional parameters B4 is period and B5 is month (optional).
Double Declining (DDB)
=DDB(B1,B2,B3,B4,B5)
Uses the double-declining balance method. B5 is the factor (optional, default is 2).
Depreciation formulas help businesses account for the diminishing value of assets over time, which is essential for accurate financial reporting and tax calculations.
Practical Example: Loan Comparison
| Loan Option | Principal | Interest Rate | Term (Years) | Monthly Payment | Total Interest |
|---|---|---|---|---|---|
| Bank A | $250,000 | 3.5% | 30 | $1,123 | $154,140 |
| Bank B | $250,000 | 3.25% | 30 | $1,088 | $141,680 |
| Bank A | $250,000 | 4.0% | 15 | $1,850 | $83,000 |
Formulas used:
- Monthly Payment:
=-PMT(C2/12,D2*12,B2) - Total Interest:
=E2*D2*12-B2
This loan comparison example demonstrates how financial formulas help you make better decisions. While the 15-year loan has a higher monthly payment, it results in significantly less interest paid over the life of the loan.
Investment Analysis Formulas
Net Present Value (NPV)
=NPV(B1,B2:B7)+B2
Calculates the current value of a series of future cash flows, discounted at a specified rate. The initial investment (B2) is added separately.
XIRR for Irregular Periods
=XIRR(B2:B7,C2:C7)
Like IRR but for cash flows that occur at irregular intervals. C2:C7 contains the dates of each cash flow.
MIRR (Modified Internal Rate of Return)
=MIRR(B2:B7,B8,B9)
A more realistic IRR calculation that assumes different rates for reinvestment of positive cash flows (B9) and financing of negative cash flows (B8).
How ExcelGPT Enhances Financial Analysis
ExcelGPT can help you master financial formulas by:
- Creating custom financial calculators tailored to your specific investment or loan scenarios
- Explaining complex financial concepts and formulas in simple, understandable terms
- Building comprehensive financial models with interconnected formulas
- Generating insightful visualizations that make financial data easier to interpret
- Providing sensitivity analysis to show how changing variables affect financial outcomes
Ready to elevate your financial analysis?
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