Huge amounts of data are analyzed for financial modelling, with experts turning to VBA (Visual Basic for Applications) and Excel to automate this. Excel is a powerful financial application, and with the right VBA input, can be used to create and maintain risk-management, trading, and pricing models, forecasts, and financial ratios, among others.
This article will explain the broad outlines of using VBA within Excel for financial modelling. Specifically, it will look at what a financial model is, how VBA and Excel work together, and how Excel functions and macros can be leveraged to automate financial modelling.
To be clear on the terminology, it’s best to know what we are talking about when we speak about financial models.
The process of financial modelling is the creation of summaries of data, usually in a spreadsheet format. Often they are datasets of the profits and expenses of a company, which are then used to inform decision-making.
Primarily, the aim is to create a systematic process which enables analysis of a database to better one’s financial decision-making. Usually, a real-world use case is that of financial analysts using financial models to evaluate a particular company’s stock to predict the performance of its assets.
Due to the immense datasets that need to be analysed, automated programs are required to successfully streamline this complex process. This is where experts like the FD4Cast team, who are knowledgeable in the nuances of finance and the algorithms built into Excel, can help.
Excel is the program of choice due to its customisable and flexible nature. Using VBA in Excel to create pre-built functions and macros, lengthy calculations can be carried out in a matter of seconds.
Functions are used to simplify any process in Excel. They are essentially commands that perform pre-specified tasks which then create an output once the function has been run. A typical example is the equation functions which crunch the numbers in a spreadsheet to arrive at an output. This saves immense time and effort on the part of the user.
You can create your own functions in Excel to tailor your needs. As a simple example, you can calculate loan interest by creating a function which can incorporate the variables of the loan amount and the requisite payback period. Once the variables are inserted, the function uses these to generate interest scenarios on the loan.
Macros, on the other hand, are a way of automating repetitive, labour-intensive tasks in Excel. They are recorded sets of actions, such as repeatedly used functions, which can be run to save on time and labour. Any functions in Excel can be recorded as a series of embedded tasks, and then run with a simple click.
VBA is the programming language for both functions and macros. So whenever a macro is run, VBA is the command that Excel reads to generate the pre-recorded actions. People can read and edit VBA. In this sense, it’s the grammar that informs the narrative of any macro.
More importantly, you can use VBA to create macros for complicated financial modelling. For example, companies can simplify budget forecasting by using a payroll budgeter macro or even sustain complex models in trading and risk management. In other words, VBA in Excel is a powerful tool which can be used to create robust financial modelling.
Financial modelling is already done through applications like Excel, so it only makes sense to automate financial modelling with pre-recorded macros. This is where VBA comes into play. In terms of utility, VBA can be potent in the creation of complex custom-made macros. Suitable financial modelling always benefits from a systematised methodology, and it can, therefore, be substantially streamlined with these.
Once you have determined the need for the financial model, you can create the code using VBA in Excel. This is the most labour-intensive part of the process, which is why it’s often best to outsource or acquire pre-made macros created for particular functions, especially if you don’t have the time or expertise. But once this has been achieved, task-specific functions for a particular type of financial modelling can be created.
After this, it’s a case of knowing which variables are necessary in order to arrive at the entire purpose of the financial model: the output. Once the requisite variables are incorporated into the macro, you can then generate the output, which can inform your subsequent decision-making or be added to a dataset.
The output can also be expressed in different visual formats, such as pie charts or trend lines, which help with comprehending the data.
While Excel has many in-built functions which can be used to great effect, using VBA to create bespoke macros for financial modelling can have clear advantages.
Its use makes all the difference in the day-to-day workload of any entity using the macros. Dataset processing in financial modelling can occur at an accelerated speed when using VBA in Excel. After finalising the creation of the macro and defining the variables, only one action is necessary to generate the task-specific output.
Furthermore, by creating a sound macro with VBA, you can minimise error by taking the human element out of the equation. The analyses of large datasets are often only sufficiently accurate when utilising macros. This matters when large sums of money or intricate financial modelling are under scrutiny.
Implementing a simple checksum structure into your financial model or excel workbook can improve your ability to detect errors in complex spreadsheets. However, the consensus from financial professionals is that it takes time and expertise to construct checksum formulas. Our expert tip is to say, automate this with VBA code.
By running VBA code through a new module within a workbook’s VBA editor, you can automate the checksum structures and audit process in your financial model. In turn, this will notify you in real-time of any errors throughout the entire workbook. It is also handy for maintaining the workbooks’ integrity when authors or users make changes to assumptions and inputs further down the line.
Aside from the convenience of added data integrity in your financial model, the entire process usually takes less than 60 seconds to implement. You can read more about it in this blog post we wrote for curing excel hell in financial models.
This article gave a general overview of how VBA can work within Excel to automate financial modelling. As can be seen from the above, it is a crucial tool to use in leveraging functions and macros for robust data analysis. For this reason, consider it when attempting to analyse large datasets in your business, whether it’s to prepare forecasts for a loan, or modelling for projected income in the future.