Data analysis is a fundamental skill to have in the accounting and finance realms. After all, most accountants and financial analysts deal with data on a daily basis. One of the preferred methods to manipulate and analyze data is Excel. In fact, nearly 63% of companies consider Excel to be a vital accounting tool.
In this article, we’ll cover seven world applications of data analysis in Excel for accounting and finance professionals. If you are interested in expanding your Excel data analysis skillset, check out our Microsoft Excel Bootcamp or Excel Mastery for Accountants courses.
Preparing Financial Data for Analysis
The first real-world application of Excel data analysis is preparing and presenting financial data for analysis. Excel gives accountants and finance professionals the ability to perform complex analyses and format data in understandable and readable formats. From built-in equations and pivot tables to conditional formatting and modeling capabilities, data analysis in Excel offers accuracy and simplicity.
Moreover, Excel automates repetitive tasks using scripting and macros. This reduces the time and effort needed to harvest data and generate strategic insights. For example, how long would it take you to sort through capital expenditures for amounts that exceed the De Minimis Safe Harbor election amount of $2,500? For large companies, this could take hours. With Excel, you can format your columns to hide transactions that don’t meet this criteria, which takes only a matter of minutes.
Financial Modeling and Forecasting
Another application of data analysis in Excel is to prepare financial models and forecasts. For one, Excel is the preferred method for putting together income tax plans and projections. Accountants can easily compile years of data to properly project upcoming obligations. Let’s face it: the tax code is complex. Being able to compare information side-by-side, such as changes in adjusted gross income or the effective tax rate, is key to maximizing tax savings.
Similarly, finance professionals leverage Excel to generate financial models to aid in transaction analysis and the decision-making process. Let’s say that your company needs to quickly analyze five different investments and make a decision by the end of the day. With a financial model already put together, you can enter the information specific to each deal to analyze the return on investment and other factors.
Analyzing Sales and Revenue Trends
Excel also benefits accountants and finance professionals when it comes to analyzing sales and revenue trends. You can easily put together charts, trendlines, and sparklines to develop growth predictions based on historical information. Unlike many other programs and reports, Excel gives you the ability to detect seasonal changes and economic cycles that impact sales and revenue trends.
By identifying this information, you can put together more accurate forecasts and help your organization properly plan resources. For example, it could take hours to manually review three years of sales data. With Excel, you can download this information into a spreadsheet, set calculation parameters, and analyze the outputs in seconds.
Tracking Key Financial Metrics
Key financial metrics are important to understand the financial health of your organization and make strategic decisions surrounding goals. Excel is the go-to method for tracking key financial metrics because of the automatic formula updating capabilities. You can either hardcode the information in different cells, or your Excel can link to other spreadsheets to seamlessly pull data in.
Let’s say that you want to track return on sales. Instead of manually calculating this metric each month, your Excel can complete this calculation on your behalf. This saves you time from having to re-calculate formulas and increases accuracy in your outputs. Housing all key financial metrics in one place unlocks comparability and accuracy.
Data Visualization for Financial Insights
Big data and complex calculations can be difficult to understand if not properly presented. For example, if you hand an investor a spreadsheet that contains thousands of data points, are they likely to comprehend the information? Probably not. This is why many accountants and finance professionals turn to Excel for data visualization and financial insights. By compiling data into readable and visually appealing graphs and charts, you increase comprehension rates.
Highlighting key points not only leads to greater transparency but can also bolster trust in your company. Is an investor or lender more likely to give your company money when they understand the data or when they have no clue what’s going on? With Excel formatting data, you improve your odds of securing funding, getting the green light on projects, or making upper management happy.
Risk Analysis and Compliance Monitoring
Accountants and financial analysts are constantly monitoring risks. For one, accountants report to the IRS and state agencies. One transposed number or forgotten transaction could result in a sticky situation with Uncle Sam. Excel serves as a double-check for accountants. For example, an accountant might compare expected tax return results with the actual outputs by placing data side-by-side in Excel. Any deviance can indicate a mistake or error.
Additionally, financial analysts evaluate investment risk on a daily basis. What is the risk of changing interest rates? How about if an investor backs out or the purchase price increases? Excel gives finance professionals the ability to put together complex models and projections that infuse transparency into risks and rewards. With this information in hand, you can find optimal solutions that balance risks.
Projecting Valuation and Business Performance
Excel is a robust program that has built-in data to help accountants and finance professionals project valuations and business performance. For one, you can easily find the net present value of different investments and calculate internal rates of return. This information helps you back into current business valuations and performance.
For example, you can generate a financial model that assumes a 5% year-over-year growth rate. With this information, you can project the expected valuation of a company years in advance to start planning an exit strategy, adjust goals, and determine which actions are needed to improve the outcome.
Excel is an Essential Tool for Finance Professionals
These are just seven of the world applications of data analysis in Excel for accountants and finance professionals. Excel overhauls inefficient procedures, allows for quick calculations, and improves the accuracy of outputs, which is why it’s no surprise that it’s the go-to tool for countless accountants and financial analysts.