Understanding Financial Functions in Excel
18 days ago
- #cashflow
- #financial-functions
- #excel
- Financial functions like FV, PV, RATE, PMT, and NPER in Excel/Google Sheets are interrelated and can derive any fifth value given the other four.
- Cashflows represent money moving in and out of assets or liabilities, with the same functions used for both by adjusting the sign of values.
- The PMT function can calculate periodic payments needed to reach a future financial goal, given present value, rate, and number of periods.
- Functions can be generalized by abstracting specific terms (e.g., years to periods) to apply across different time frames.
- Parameters in financial functions follow a consistent order, making it easier to remember and use them.
- The underlying model supports calculating various financial metrics like CAGR and effective annual rates for investments like ULIPs.
- For varying cashflows and periods, functions like IRR, NPV, XIRR, and XNPV are used, with XIRR handling irregular payments and periods.
- The calculations for uneven cashflows are iterative, unlike the straightforward equations for constant payments and periods.
- The article provides a visual model to help understand and remember the relationships between these financial functions.