Introduction

What is Microsoft Excel?

Microsoft Excel is a software that is widely used for organizing, analyzing, and storing data. It is helpful for handling both numerical and non-numerical information, including text, dates, and other data types. Whether you need to perform basic arithmetic calculations or to build a sophisticated financial model, Excel will help you do it quickly and easily.

What is Excel used for?

Because the tool offers a very broad set of functionalities, compiling an exhaustive list of all possible reasons to create an Excel workbook would be a challenging task. However, here are a number of most popular Microsoft Excel uses:

  1. Data mining – Understand the Past
    • Find trends and patterns in existing data
    • Identify drivers behind the trends
    • Visualize your insights to share with others
  2. Modeling – Forecast the Future
    • Lay out your most critical assumptions
    • Perform necessary calculations to convert assumptions into model outputs
    • Visualize your outputs to share with others
  3. Automation – Become more efficient
    • Outsource analytical tasks to a machine
    • Speed up your analytical work and avoid “human errors”

Quick example
sample excel data

Figure 1. Sample excel data set

Sample task

Let’s say, Max wants to save $10K this year to buy a car. He wants to understand whether he’s on track to reach this goal and, if not, what corrective actions are needed.

Using Microsoft Excel, he analyzed his bank statement and realized that he is not saving enough to reach the goal on time. Then, he built a simple Excel model and found out that, to reach the target, he needs to move to a cheaper apartment and stop visiting a local coffee shop twice a day. If both conditions are satisfied, he will be right on track to buy the car in one year from now.

How to do it

  1. First, Max converted his account statement to Excel format. Nowadays most service companies provide an option to export monthly statements to Microsoft Excel. Otherwise, you can just directly copy them from the web page and paste in your Excel workbook. Figure 1 shows what Max got as a result.
  2. excel pivot table

    Figure 2. Excel pivot table

    Next, Max created an Excel pivot table to summarize the data (see Figure 2) and got two major insights from it:

    • He has been only saving a little more than $120 a month. If he continues like that, he will only get $1.5K in one year, not the $10K he needs
    • After his monthly rent ($2K), the second largest expense was actually a local coffee shop. He stops there every morning to get a cup of amazing latte and then after lunch again for a cup of tea
  3. Then, Max built a simple Excel model to see what it takes for him to reach $10K savings by the end of the year:
    • First, he assumed that all monthly expenses stay the same. That gave him ~$1.5 annual savings (see Figure 3, highlighted in yellow)
    • Second, he assumed he can move to a cheaper apartment ($1.5K per month instead of $2K) and start brewing coffee at home instead of visiting a local coffee shop. He has a huge supply of coffee at home, which he rarely uses, so the cost of buying coffee beans can be neglected. That scenario actually proved to reach just about his targeted savings of $10K per year (see Figure 4).
excel model

Figure 3. Excel model – Scenario 1

excel model

Figure 4. Excel model – Scenario 2

All in all, Max spent less than half an hour to analyze the data and make the decision. The functionality of Microsoft Excel made this task very easy for him, so he could immediately move on to searching for a new apartment as his next step.

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