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Understand Models Essay

Learning about Excel the past two weeks of this module have been interesting. There is more to learn about Excel than students could have anticipated. Week two of classes we were to complete an income statement, balance sheet, statement of cash flows, a common size income statement, and a common size balance sheet, from chapter two of Mayes & Shank (2012) problem number 3. The question that needs to be answered is what the value is in having the financial statements on a spreadsheet (Mayes & Shank, 2012). The answer is that all the information is formulated within the Excel; it is easy to read and even easier to navigate through and follow.

When doing an Excel spreadsheet especially dealing with financial statements, there are a lot of formulas and numbers to be tracked. In the problem we had missing numbers that needed to be calculated with the proper formulas in Excel. For the income statements the first number to be calculated was for the gross profit. This was accomplished by taking the sales of Winter Park Web Design and subtracting that by the cost of goods sold. Next was to find the depreciation expense. This was found by looking on the statement of cash flows spreadsheet of Winter Park Web Design under depreciation expense. The next missing calculation was for the net operating income.

The net operating income was found by taking the gross profit and subtracting it from the depreciation expense and subtracting that from the selling and administrative expense to get the total for net operating income. Next was to calculate the earnings before taxes, by taking the net operating income and subtracting the interest expense from it. The next was to calculate the taxes. This was done by taking the earnings before taxes and multiplying the number by the tax rate. Last was to calculate the net income. This is calculated by taking the earnings before taxes and subtracting it by the taxes.

By doing the first step of the problem it was easy to realize how important it was to get the formulas correct and how they coincide with other spreadsheets. If there was a number wrong on one spreadsheet there would be wrong numbers on other spreadsheets. Laying the calculations out and making sure they are correct is very important. Noticing that when there are different tabs on the bottom of the Excel spreadsheet to work with is also another important feature because then users can maneuver properly throughout the different spreadsheets.

Instead of explaining the next steps of the problem until it is complete, there seems to be more of an explanation as to why these Excel spreadsheets have value when implementing financial statements. Being able to easily navigate through them was a big plus. Learning all the key essentials made it easier to realize how the formulas worked and how all the numbers eventually tie in. Explaining one of the steps in the problem was important to see how everything linked together; therefore there is no need to explain the rest of the steps.

Learning Excel has been difficult but also rewarding at the same time. There are many key features to using Excel and learning them is very critical. Viewing the financial statements on a spreadsheet in Excel makes the numbers easier to follow and people can view the formulas as well. Navigating through the spreadsheets has been a major value when reviewing the financial statements.

References
Mayes, T., & Shank, T. (2012). Financial analysis with Microsoft Excel. (6th Ed.). Mason, OH: South-Western Cengage Learning. Rees, M. (2012). Financial modeling in practice: A concise guide for intermediate and advanced levels. West Sussex, England: Wiley & Sons.


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