It is one of the simplest techniques to know the feasibility of any investment or the project. The project is preferred over another if its payback period is shorter than that of the second project.

It is very easy to calculate the payback period of any investment using Excel.__Let us learn to calculate it in different situations__:

It is very easy to calculate the payback period of any investment using Excel.

Please look at the following example, there is a project which requires an investment of $5,00,000 (Cash outflow), producing $ 1,00,000 (cash inflow) every year for the next 6 years.

You can draw the table shown above and write the expected cash flows for the subsequent years. As the cash flows are equal, the payback period calculation is simple and can be written as:

**Payback period = Initial investment/Cash inflow per period**

In the above case, the payback period is $5,00,000/$ 1,00,000 = 5 years

It means that it is going to take 5 years to recover your initial investment of $ 5,00,000. The project will achieve the break-even at the end of the 6th year because the cash inflows will start from 2nd year on wards and thereafter it will take 5 years to achieve the break-even.

In the above case, the payback period is $5,00,000/$ 1,00,000 = 5 years

It means that it is going to take 5 years to recover your initial investment of $ 5,00,000. The project will achieve the break-even at the end of the 6th year because the cash inflows will start from 2nd year on wards and thereafter it will take 5 years to achieve the break-even.

In the following example, the initial investment is $ 4,00,000 and the subsequent cash flows are $ 70,000 every year which are not an exact multiple of the initial investment of $ 4,00,000. Here also, the formula will remain the same, the only difference is that in this case the payback period is not the exact number but it is in decimals, 5.71 years.

In the above screenshot the payback period is 5.71 years.

When the cash flows are uneven as shown in the following example then it becomes difficult to know the payback period simply by dividing the cash investment by the cash inflow per period

Here we need to use the concept of the cumulative cash inflows. The cumulative cash flows are the sum of all the cash flows during the life of the project. The moment cumulative cash flows exceed the initial investment is called the break-even point of the project (The break-even point is the point of no profit and no loss). And the time taken to reach the break-even point is the payback period of the investment.

Here we need to use the concept of the cumulative cash inflows. The cumulative cash flows are the sum of all the cash flows during the life of the project. The moment cumulative cash flows exceed the initial investment is called the break-even point of the project (The break-even point is the point of no profit and no loss). And the time taken to reach the break-even point is the payback period of the investment.

The formula, in this case, is as follows:

Payback period = The value of the year in which last negative cumulative cash flow occurred + (value of the cumulative cash flow in that year**divided** by the cash inflow in the next year)

Referring to the above screenshot, you can write as follows:

Payback = 5 + ABS (-60,000/80,000) = 5 + 0.75 = 5.75 years. Therefore, the payback period of the project is 5.75 years.

*(*The ABS function is used to get the absolute value)*

Payback period = The value of the year in which last negative cumulative cash flow occurred + (value of the cumulative cash flow in that year

Referring to the above screenshot, you can write as follows:

Payback = 5 + ABS (-60,000/80,000) = 5 + 0.75 = 5.75 years. Therefore, the payback period of the project is 5.75 years.

But this a manual method to find the payback period, as you need to calculate the payback period manually every time when considering the new project.

We can design the simple calculator to find the payback period using the COUNTIF and the VLOOKUP function.

The steps involved in designing this simple calculator are as follows:**Step 1:**

In the previous example, first, count the number of years in which the cumulative cash flows are negative using COUNTIF function.

= COUNTIF(C2:C8,”<0”)

Upon writing this formula, it searches for the condition to be true within the range you have specified and returns the answer, 5.

We can design the simple calculator to find the payback period using the COUNTIF and the VLOOKUP function.

The steps involved in designing this simple calculator are as follows:

: Count the number of years, using COUNTIF function, till the last negative cumulative cash flow__Step 1__: Look for the last negative value of the cumulative cash flow using VLOOKUP function**Step 2**: Look for the next year’s cash inflow using VLOOKUP function**Step 3**: Divide the value of step 2 by the value of step 3**Step 4**: Take the absolute value, using ABS function, of the result obtained in step 4**Step 5**: Add the output obtained in the step 4 with the output of step 1 and you get the payback period of the investment**Step 6**

In the previous example, first, count the number of years in which the cumulative cash flows are negative using COUNTIF function.

= COUNTIF(C2:C8,”<0”)

Upon writing this formula, it searches for the condition to be true within the range you have specified and returns the answer, 5.

It means that there are 5 years which are having the negative cumulative cashflows.

__Step 2: __

VLOOKUP to find the value of the last negative cumulative cash flow:

This function retrieves the data from the specific column based on the condition specified by the user.

VLOOKUP to find the value of the last negative cumulative cash flow:

This function retrieves the data from the specific column based on the condition specified by the user.

The lookup value is the value which you have obtained using the COUNTIF function whose output is in the cell D9, 5 years. In the

VLOOKUP to find the cash inflow in the next year:

Similarly, we can look for the cash inflow for the next year that is 5 + 1 = 6th year.

This can be done as follows:

This will look for the value in column 2 corresponding to the 6th year and produce the result $ 80,000

Finding the fractional value and extracting the absolute value:

This can be done as follows:

The payback period:

We can further reduce the number of cells by combining the outputs of VLOOKUP function into one cell.

__Combining VLOOKUP functions__ __into one cell__:

=VLOOKUP(D9,A1:C8,3)/VLOOKUP(D9+1,A1:C8,2)

=VLOOKUP(D9,A1:C8,3)/VLOOKUP(D9+1,A1:C8,2)

__Combining the absolute value and the fractional value in one cell__:

=COUNTIF(C2:C8,"<0")+ABS(VLOOKUP(COUNTIF(C2:C8,"<0"),A1:C8,3)/VLOOKUP(COUNTIF(C2:C8,"<0")+1,A1:C8,2))

=COUNTIF(C2:C8,"<0")+ABS(VLOOKUP(COUNTIF(C2:C8,"<0"),A1:C8,3)/VLOOKUP(COUNTIF(C2:C8,"<0")+1,A1:C8,2))

Now, this has become a simple calculator which automatically calculates the payback period of the investment or the project. You can consider different projects with different cash flows but the life of the project should be 7 years as I have designed for the project life of 7 years.

Although it is one of the easiest methods to determine the feasibility of the investment but it doesn’t consider the time value of money while determining the payback period.

Therefore, it can’t be used alone for decision making. It is the crude method to shortlist the project. The project having a shorter payback period is often considered desirable than the one having the longer payback period.

]]>Therefore, it can’t be used alone for decision making. It is the crude method to shortlist the project. The project having a shorter payback period is often considered desirable than the one having the longer payback period.

Excel provides the easy solution to lock the entire sheet and preventing the accidental damage or the tempering of the information present in the cells.

There are 2 ways to protect the sheet in Excel 2016, 2013 and 2010, perform the following steps:

__First way__:**The process is shown in the following spreadsheet:**

**Open the spreadsheet you want to protect > click on the Review tab at the top > Select the Protect Sheet.**

**Right click on the worksheet tab (Sheet 1) > Protect Sheet**

When you click the Protect sheet option, a dialog window will open asking for the password to protect the sheet as follows:

- In order to protect the sheet, type the password with alphanumeric characters to make it strong and press OK. The confirm dialog box will pop up prompting you to re-type the password avoiding any misprint. Re-type the password and press OK. Be sure to remember the password and it is better to write it in the notebook as you will be needing it to unprotect the worksheet for editing.
- Sometimes, it is uneasy for the team to remember the password every time and unprotect the sheet for editing when forwarding the sheet information within the department. If you just want to prevent the accidental modification of the information or the formula and at the same time do not want to memorize and type the password every time to unprotect the sheet then
**just leave the password blank and Press OK**. If somebody in your department wants to unprotect the sheet, just click on the Unprotect Sheet button on the ribbon or in the Sheet tab’s right click (dialog box will open) and click the Unprotect Sheet from its menu. The procedure is shown below:

- By default, the two options are already selected in Excel like select
**locked cells**and select**unlocked cells** - If you want the users to perform other actions like insert column and rows, delete column and rows, sorting etc then you can select these fields and press OK
- If you don’t check any of the options or the fields, the user will only able to see the sheet
- Click the OK button

- The confirm dialog box will pop up prompting you to re-type the password so as to avoid any accidental misprint. Retype the password and press OK

As you have seen above that it is quite easy and Excel offers two ways to protect the work sheet. It is even easier to unlock as Excel provides multiple ways to do it. Remember, you will always need a password to Unprotect the sheet.

__Way 1__

**Review > Unprotect Sheet**

Upon pressing the **Unprotect Sheet button** using any of the above ways, the new dialog box is opened and you are prompted to **enter the password** to unprotect the sheet. On entering the password, **press OK** and the sheet is unprotected and you can edit it.

I have used the way 1 to unprotect the sheet shown in the above screenshot which is as follows:

**Review > Unprotect sheet > Password > OK**

The worksheet protection in Excel is not actually a security feature as it uses a very simple algorithm and anyone having the basic knowledge of VBA can break it easily. It is a feature which is used to avoid any accidental loss of information by you or your team members.

]]>A teacher has the list of students with some of the names are repeated in the list. She is assigned the job to find the duplicate values and submit the correct list.

You can see that the names of “Smith” and “Anglina” are repeated twice which I have highlighted manually using the orange color. But when the list is quite large it becomes difficult and time-consuming to find the duplicate values manually.

To make this work easy, there is an option in Excel which automatically highlights the duplicate values. Let us understand the procedure by looking at the following screenshot:

**Select the list of the students > Home > Conditional Formatting > Highlight Cells Rules > Duplicate Values**

To make this work easy, there is an option in Excel which automatically highlights the duplicate values. Let us understand the procedure by looking at the following screenshot:

On clicking the **Duplicate Values**, Excel will highlight these values with colors. See the following screenshot:

When you click OK tab shown in the above screenshot, the duplicate values will be highlighted with red color. You can click on the drop box and highlight the duplicate values with the color of your choice.

__Remove the duplicate values__:

You can free your list from duplicates by permanently deleting the repeating values. Use the following procedure:

**Select the list > Data > Remove Duplicate**

You can free your list from duplicates by permanently deleting the repeating values. Use the following procedure:

After clicking on the **Remove Duplicates**, the new window will open which will give you the option to check one or more columns which contain the duplicate values and uncheck those columns which don’t contain the duplicate values. Please look at the following screenshot:

After clicking the OK tab, Excel will mention the number of duplicate values and the number of unique values left after deleting the duplicate values:

The final result after hitting the **OK button**:

Total 18 unique values remained after deleting the repeating names “Smith” and “Anglina”

It is better to save the original list into another spreadsheet before deleting the duplicate values. This function is very useful when you have a very large list of names containing the duplicate values. You can very easily find the duplicate values and delete them within a very short period of time.

]]>The syntax of the function is as follows:

**COUNTIF (range, criterion)**__Let us explore this function with some examples having different criterion:__

- The range is the number of cells you specify in your worksheet and this can be specified as A1:A10 or B1:B20.
- The criterion is the condition which enables the Excel to count those cells, out of the range of cells, which meet your requirement. For example, if I set the criterion to count those cells which are greater than 25, the Excel will select these specific cells, count them and will produce the result.

Below is the list of 20 students with their marks in the percentage. The teacher is assigned the job to count the students who scored > 33% marks and thus calculate the passing percentage. She can very easily know the number of students passed in the examination using the COUNTIF function and can calculate the passing percentage of the students.

=COUNTIF (C2:C21,”>33%”)

- The Range is from C2 to C21 and
- The criterion is that it should be > 33%
- Result: 14 (There are 14 such students who scored more than 33% marks in the examination)

Another simple example to match the text and count the number of times it occurred in the selected range of the texts. Below is the list of the football winners across the world in the last 60 years. Let us say that I want to know the number of times team Brazil has won the world cup title in the last 60 years. I can do this very easily using the COUNTIF function which is illustrated in the screenshot shown below:

- Range is B2:B17
- Criterion is “Brazil”
- Result: 5 (Excel will count the number of time Brazil occurs in the given range and produce the result)

This function can be used to count the partial match of the characters out of the given range. Suppose you want to know that how many students are there in the class with surname Gupta, irrespective of their different initial name, from the list of the students given below:

The asterisk (*) sign in the formula is used to find and count those cells with any sequence with the text “Gupta”.

__Again, if you want to know the names that start with alphabet "A" and it does not matter how many other letters it contains, then use the following formula:__

Similarly, if I say that I want to know the students’ name end with “ma” irrespective of the number of the letters at the beginning of “ma”, we can use the following formula:

This function can be used to find the blank and the non-blank cells in the given range. Suppose the station master wants to know the status of the number of trains with no remarks about their whereabouts. We can help him using the COUNTIF function which is illustrated in the following example:

And the blank cells are as follows:

By now you must have seen and understood the versatility and the usefulness of the COUNTIF function. It is one of the simplest functions which meets your multiple requirements.

]]>A teacher has the list of the marks of the students who appeared for the semester exam. If a student scores more than 35% then s/he passes the examination otherwise s/he needs to repeat the exam.

Can you help the teacher using the IF function in preparing the list of passed and the failed students?

Based on the condition mentioned in the example, we need to use the IF function which gives the result "Pass" when student scores more 35% and "Fail" if the score is less than 35%. This can be done as follows:

Working:

=IF(C2>35%,” Pass”,” Fail”)

Result: Pass

__Explanation__: The marks in the cell C2 are 55% which are greater than the set criteria of 35%. Therefore, the result is "Pass".

Result: Pass

Similarly, for the next cell

Working

=IF(C3>35%,” Pass”,” Fail”)

Result: Fail

__Explanation__: The marks in the cell C3 are 25% which are less than the set criteria of 35%. Therefore, the result is "Fail".

Result: Fail

You need not to write the condition every time in the cell, just drag the cell D3 till D21, the **Remarks** will be updated automatically.

Mr. Smith is working in the XYZ ltd as a Financial Analyst. He is given the task to evaluate the feasibility of the two projects using the Internal Rate of Return (IRR) by the management. The management will approve the project if its IRR is greater than hurdle rate of 8% otherwise, the project is rejected.

The negative value indicates the cash outflows while the positive values indicate the cash inflows.

__After evaluating the IRR, he comes up with the following results__:

__Working for project 1__

__Working for Project 2__

The user can use the IF function in many situations by setting the criteria as per the requirements. You can see in the above examples that it is a very powerful function which makes the decision making very easy.

]]>The Internal Rate of Return is the rate of return which makes the Net Present Value of all the cash flows from a project or an investment to zero. It is generally used to measure the attractiveness of the investment or the project.

Let me suppose you invest in any of the projects of your field or choice. How do you know that it a profitable project that will give you the higher return than the cost of capital? The IRR is one such tool which lets you know the internal rate of return of your project. It deals with the periodic cash flows.

If

Let me suppose you invest in any of the projects of your field or choice. How do you know that it a profitable project that will give you the higher return than the cost of capital? The IRR is one such tool which lets you know the internal rate of return of your project. It deals with the periodic cash flows.

If

- I
**RR > cost of the capital or the hurdle rate (The project is feasible)** **IRR < cost of the capital or the hurdle rate (The project is not feasible**)

Where,

The value of IRR cannot be calculated analytically rather we use hit and trial method to calculate this value.

- CF₁ = Cash flows at the 0 year
- CF₂ = Cashflows in the 1st year
- CF₃ = Cash flows in the 3rd year
- CFn = cash flows in the nth year

The value of IRR cannot be calculated analytically rather we use hit and trial method to calculate this value.

- In this case, if the IRR > 8% the company should purchase the machinery otherwise it should look for other alternative investment option.

And after putting the values in the formula given above, the value of IRR comes to be 10.6 %. The value of IRR is determined through hit and trial method and when I use the above formula, it is quite tedious.

But if I calculate the same using excel then it is quite easy and fast. So, let us calculate the IRR in the excel sheet.__The syntax for IRR in the excel is as follows__:

**IRR (values, [guess])**

__The values part__:__The guess part__: It is the value which you guess is near to the IRR. It is optional and you can leave it blank.

But if I calculate the same using excel then it is quite easy and fast. So, let us calculate the IRR in the excel sheet.

- In the value part, you enter the cash flows for the specific period. The cash flows need not be equal as in the case of an annuity but these must occur at the regular interval of time like quarterly or yearly.
- For calculating the IRR your values must contain at least one negative and the one positive values. The negative values are taken as the investments or the cash outflows while the positive values are taken as the cash inflows or the profits.

Arrange all the cash flows for the specific period as follows:

The negative and red colored value indicates the cash outflow.

__Step: 2__

Leave the guess part blank.

__Step:3__

You can see the above screenshot that the IRR value is greater than the Hurdle rate, hence the project is acceptable and feasible. You can compare the two projects with the same duration.

However, the IRR has one major disadvantage as it does not disclose the amount of initial investment. What I mean to say that it does not tells whether it is 15% on $ 4,00,000 or 15% on $ 10,00,000, therefore taking decision merely on IRR is not always advisable.

Let me explain it further, investment in project offering 15% return on $ 4,00,000 of the investment is more suitable for a small company which has less cash to invest than a project offering 20% on $ 10,00,000 of the initial investment.

Therefore, you need to keep all these points in mind while evaluating the IRR of the project and taking the final decision as the entrepreneur.

]]>However, the IRR has one major disadvantage as it does not disclose the amount of initial investment. What I mean to say that it does not tells whether it is 15% on $ 4,00,000 or 15% on $ 10,00,000, therefore taking decision merely on IRR is not always advisable.

Let me explain it further, investment in project offering 15% return on $ 4,00,000 of the investment is more suitable for a small company which has less cash to invest than a project offering 20% on $ 10,00,000 of the initial investment.

Therefore, you need to keep all these points in mind while evaluating the IRR of the project and taking the final decision as the entrepreneur.

You can see the in above screen shot that when $ 10,000 are invested at the rate of 5% per year, the first-year interest is $ 500 and this interest is added back to the principal $ 10,000 (it becomes $ 10,000 + $ 500 = $ 15,000) to calculate the interest for the 2nd year which is 5% of $ 15,000 = $ 525. This process is repeated till the maturity period of 10 years.

The compound interest formula in Excel is generally used to calculate the future value of the investment with the given time-period and the rate of investment.

__The Formula__:

The compound interest formula in Excel is generally used to calculate the future value of the investment with the given time-period and the rate of investment.

- A = Maturity value at the end of the period
- r = Annual rate of interest (in decimal)
- t = Number of years of investment
- n = Number of compounding periods

- Yearly compounding; n=1
- Quarterly compounding; n=4
- Monthly compounding; n=12
- Daily compounding; n= 365

Let’s say I deposit $ 10,000 (one-time investment) for 10 years at the annual rate of 5% with

**Amount = 10,000 * (1 + 0.05/1) ^ (1*10)**

So, my investment will become $ 16,288.90 at the end of the 10th year.

Many a times, this formula will give you the output with many digits after the decimal. Just use the Round function to limit the digits to 1 or 2 after the decimal.

__The new formula becomes__:

= $ 16,288.90 - $ 10,000 = $ 6,288.90

**Amount = Round (10,000 * (1 + 0.05/1) ^ (1*10), 1)**

= $ 16,288.90 - $ 10,000 = $ 6,288.90

The maturity amount varies with the change in the number of compounding period. I can say that the maturity amount increases with the increase in the number of compounding periods.

In the above example, if I change the nature of compounding from yearly to quarterly (4 compounding periods in a year), my maturity amount increases to $ 16,436.20

In the above example, if I change the nature of compounding from yearly to quarterly (4 compounding periods in a year), my maturity amount increases to $ 16,436.20

__The Excel formula becomes__:

Amount = Round (10,000 * (1 + 0.05/4) ^ (4*10), 1) = $ 16,436.20

Compound interest accumulated = $ 6,436.20

Amount = Round (10,000 * (1 + 0.05/4) ^ (4*10), 1) = $ 16,436.20

Compound interest accumulated = $ 6,436.20

__The Excel formula becomes__:

Amount = Round (10,000 * (1 + 0.05/12) ^ (12*10), 1) = $ 16,470.10

Compound interest accumulated = $ 6,470.10

Amount = Round (10,000 * (1 + 0.05/12) ^ (12*10), 1) = $ 16,470.10

Compound interest accumulated = $ 6,470.10

__The Excel formula becomes__:

Amount = Round (10,000 * (1 + 0.05/365) ^ (365*10), 1) = $ 16,486.60

Compound interest accumulated = $ 6,486.60

Amount = Round (10,000 * (1 + 0.05/365) ^ (365*10), 1) = $ 16,486.60

Compound interest accumulated = $ 6,486.60

The above calculations are based when you do one-time investment in any instrument for the specific period of time and at the constant rate of interest. Next time when you visit the bank and its representative offers you fixed deposit scheme, you simply ask the number of compounding periods in a year. The more are the compounding periods, the better are your returns. I am attaching the Compound interest calculator which you can download and can check yourself.

compound_interest_template.xlsx |