Why Excel is Still the Backbone for every Finance Jobs

Excel as the Foundation Tool for Finance Professionals and Students

Excel has become the leader in financial modeling and analysis due to its widespread use and accessibility. As financial students enter a finance-related academic program, their introduction to Excel as a tool will help build a foundation of knowledge about Excel that will carry with them throughout their career, regardless of the organization or industry that they work for.

In addition, unlike many high-end financial software applications that require significant proprietary training and often involve high licensing costs, Excel represents the common denominator in finance; it can be found on virtually all computers in an office environment. Therefore, it is the most readily available tool for performing ad-hoc financial analysis and calculations and for manipulating financial-related data. The result of Excel's widespread usability is the ability for finance professionals to work together across geographical boundaries; for example, a financial model created by an analyst in London can be emailed to a controller in Singapore, opened and edited without the fear of any compatibility problems or software conflicts.

Moreover, the democratization of Excel allows finance professionals from all levels of organizations to perform finance-related tasks with little or no previous exposure or experience with Excel. The only barrier to doing so is the availability of Excel itself, but the potential for what can be accomplished with Excel is almost unlimited. In short, Excel serves as a finance professional's “Swiss Army knife”—it is a singular financial tool that can perform many different functions adequately, whereas specialized tools may perform better at one function.

Everyday Financial Analysis and Reporting Using Excel

A closer look at how financial professionals use Excel demonstrates the tool’s unique ability to handle and analyze data. In finance, the key is to identify and use numbers to provide insights into how well the company has performed, where it stands currently, and how well it will perform in the future. Excel has a spreadsheet format that is easy to use and will allow users to perform basic analysis using rows and columns. In addition to organizing data (monthly revenue, categorizing expenses, tracking asset activity), Excel offers more tools to create sophisticated analyses.

The basic functions of Excel (e.g., SUM, AVERAGE, COUNT) can easily be expanded to create advanced functions, such as SUMIFs, COUNTIFs, and AVERAGEIFs, for analyzing data in an interactive manner. Interns or analysts working in Excel for finance typically do all of their work in Excel (for example, compare two or more bank statements, prepare variance reports for departments, aggregate sales data by state, etc.).

With just a couple of clicks, users can quickly sort and filter large data sets to locate specific transactions, recognize patterns, or examine unusual items. Excel's PivotTable feature takes unorganized databases and converts them into easy-to-read reports to help users make quick decisions.

Excel’s Role in Financial Modelling and Advanced Analytics

Nonetheless, Excel’s cornerstone of financial applications lies predominantly in Financial Modelling and Advanced Analytics. The creation of Financial Models is where Excel transcends beyond just an Enterprise Tool and becomes an actual environment to create models. An example of this would be creating a Discounted Cash Flow (DCF) or a Three-Statement model to project future performance or a Leveraged Buyout (LBO) Model to evaluate Acquisition Targets.

The process of creating these models can often be complex, iterative and require accuracy, transparency, and flexibility. Because Excel is a formula-driven application, users can develop extensive networks of management assumptions, results, and calculations that are linked together. Once the user updates one growth rate assumption within a cell, the impact ripples through the entire model, thereby changing the projections of Revenue, Expenses & Net Income along with Valuation.

The ability to perform these types of analyses regarding key Metrics such as Net Present Value (NPV), Internal Rate of Return (IRR) based on scenarios and sensitivities is essential for the Finance Industry. Often, Finance Professionals will ask themselves “What if?” – “What if Interest Rates went up 1%?” or “What if the cost of Raw Materials increased by 15%?” Data Tables and Scenario Manager Functions allow users to systematically evaluate “What if” questions and quantify the impact of these assumptions on Key Metrics such as NPV or IRR. Additionally, users can utilize advanced functions such as XLOOKUP, INDEX MATCH, OFFSET etc... to perform searches based on names, numbers or arrays.

Excel as a Data Integration and Business Intelligence Bridge

Excel has a very important role to play with regard to manipulating data beyond what it was originally designed to do. The advent of modern finance means we no longer expect all of our financial-related documentation to be stored in one centralized spreadsheet. On any given day, data may come into our organization through ERPs (like SAP or Oracle), CRM (like Salesforce) or other databases. Excel serves as a connector between all this different data, creating a staging area for us to conduct our analysis.

With the introduction of Power Query (formerly referred to as Get & Transform), Excel has evolved from being a simple calculation tool into a powerful engine for data preparation. By using Power Query to connect directly to the external databases, web pages or folders, finance professionals now have the ability to import millions of rows of data, clean, reshape, and transform all of that data without having to learn to write any code. Monthly sales figures from your ERP can now easily be combined with marketing spend figures from another location and foreign currency exchange rates from an online source and create one analysis-ready table within Excel.

The integration continues when it comes to preparing presentations as well. Excel offers many different types of graphs and charts; while some of them may not have quite the same polished look as those found in traditional business intelligence (BI) products, they can all provide clear and compelling ways to present the quantitative data, and are a direct link to the actual underlying quantitative data.

The primary argument supporting Excel’s status as the core application at a company is that it offers the level of flexibility and adaptability that is so critical to success vs. formal reporting systems that tend to be too inflexible in nature. Formal ERP systems and Business Intelligence tools are both specifically geared to support structured business processes and repetitive types of business processes, such as reporting of monthly financials, invoice processing, and tracking of the company's general ledger.

They each do an excellent job of performing these tasks; however, it is also common for companies to encounter many non-structured and ‘one-time’ analytical requests to be performed which cannot be accomplished by either tool. Examples of these types of analytical requests include the need for an immediate analysis of the profitability of a proposed product line, the identification of the root-cause of a sudden increase in logistics cost for a certain country and the immediate valuation of a possible acquisition target.

All examples of these queries represent one-time analytical reports which require data extraction from various place within the company's operations, the application of unique assumptions, and the building of a customized analytical framework. Because Excel requires that users develop their own customized analytical frameworks instead of following predetermined structures, it is the best option for addressing these types of analytical requests.

The Future of Excel in an Evolving Finance Landscape

No one can tell what the future will hold, but one question being raised right now is whether or not Excel will remain a dominant productivity tool for a long time to come. With the emergence of new technologies such as automation, cloud-based solutions (like Google Sheets), and programming languages such as Python and R, it is likely that Excel has some stiff competition. However, rather than view these newer options as completely replacing Excel, it is more appropriate to see them as evolving alongside or, perhaps, in some instances, complementing Excel.

Over time, Excel has continually adopted and incorporated emerging technologies into its offerings, such as when it added Python support. The integration of Python directly into Excel represents both a major milestone and an innovative opportunity for mixing together Excel's intuitive and user-friendly design with the programming language's statistical and machine learning capabilities.

The combination will allow users to build, utilize, and process complex predictive analytic models, as well as fully automated data pipelines, in a familiar spreadsheet-type programming interface. Additionally, cloud computing (via Microsoft 365) has addressed perhaps one of Excel's biggest challenges over the years — controlling the version of a spreadsheet and multiple users collaborating on the same document.

Using co-authoring capabilities in real-time, dynamic implementation of changes and merging of multiple analysts' edits allows enhanced collaboration, thereby increasing Excel's value in a team-based setting. Consequently, rather than replacing Excel, many are now viewing Excel as an easy front-end interface that allows finance professionals to analyze, manipulate, and act upon data previously, with all of the heavy-duty data processing being performed elsewhere.

Conclusion

In conclusion, as a finance intern preparing for a future within the finance sector, it is very important to see Excel as more than just software that is required to perform duties. Excel has become central to the entire profession. This centrality is the result of two things: Universal access and a deep need for gathering much information. Excel is used as a calculator on a quick basis, as a Modeler for complex and numerous financial data, to join different types of financial data and to create an articulate financial story. Although we will continue to create and build upon different types of financial products, in most cases, they will revolve around Excel and therefore add to or utilize the data within Excel.

Excel, therefore, is not just another technical skill that is placed on a resume, but an entire method of structuring financial thought. Excel develops the ability to create logical structures for finances, a keen awareness of financial data, and a clear understanding of how various financial variables influence one another. In a world of rapidly changing data, Excel represents a steady, flexible, and effective basis for communication in finance departments around the world. Excel is the tool that all future financial mentors and practitioners must be well-versed in if they are to express their financial creative side with confidence.