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Financial Analysis With Microsoft Excel 8th Edition Timothy R Mayes

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Financial Analysis With Microsoft Excel 8th Edition Timothy R Mayes
8th Edition Financial Analysis withMicrosoft® Excel® 2016 Timothy R. Mayes Financial Analysis with Microsoft ® Excel ® 2016 Mayes 8th Edition 8th Edition Financial Analysis withMicrosoft® Excel® 2016 Timothy R. Mayes To register or access your online learning solution or purchase materials for your course, visit www.cengagebrain.com.
Financial Analysis with Microsoft® Excel® EIGHTH EDITION Timothy R. Mayes Metropolitan State College of Denver Australia • Brazil • Mexico • Singapore • United Kingdom • United States
Financial Analysis with Microsoft® Excel® , Eighth Edition Timothy R. Mayes SVP, GM Social Science and Qualitative Business: Erin Joyner Executive Product Director: Mike Schenk Sr. Product Team Manager: Joe Sabatino Project Manager: Julie Dierig Content Developer: Tara Slagle, MPS North America LLC Product Assistant: Renee Schnee Sr. Marketing Manager: Nate Anderson Manufacturing Planner: Kevin Kluck Intellectual Property Analysts: Brittani Morgan and Ashley Maynard Intellectual Property Project Manager: Kathryn Kucharek Art and Cover Direction, Production Management, and Composition: Lumina Datamatics Inc. Sr. Art Director: Michelle Kunkler Cover Image: Cover Screenshots are used with permission from Microsoft Corporation, Microsoft Excel® is a registered trademark of Microsoft Corporation. © 2016 Microsoft. © 2018, 2015 Cengage Learning® Unless otherwise noted, all content is © Cengage Microsoft Excel: Microsoft Excel is a registered trademark of Microsoft Corporation. 2014 Microsoft ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706. For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions. Further permissions questions can be emailed to permissionrequest@cengage.com. Library of Congress Control Number: 2017934413 ISBN: 978-1-337-29804-9 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world. Find your local representative at www.cengage.com/global Cengage Learning products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage Learning Solutions, visit www.cengage.com. Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com. Printed in the United States of America Print Number: 01 Print Year: 2017
iii Preface xiii Purpose of the Book xiv Target Audience xiv A Note to Students xv Organization of the Book xv Outstanding Features xvi Pedagogical Features xvii Supplements xvii Typography Conventions xviii Changes from the 7th Edition xix A Note on the Internet xix Acknowledgments xx CHAPTER 1 Introduction to Excel 2016 1 Spreadsheet Uses 2 Starting Microsoft Excel 2 Parts of the Excel Screen 3 The File Tab and Quick Access Toolbar 3 The Home Tab 4 The Formula Bar 6 The Worksheet Area 6 Sheet Tabs 7 Status Bar 7 Navigating the Worksheet 8 Selecting a Range of Cells 9 Using Defined Names 9 Entering Text and Numbers 10 Formatting and Alignment Options 11 Formatting Numbers 13 Adding Borders and Shading 14 Entering Formulas 14 Copying and Moving Formulas 17 Mathematical Operators 18 Parentheses and the Order of Operations 18 Contents
Contents iv Using Excel’s Built-In Functions 20 Using the Insert Function Dialog Box 21 “Dot Functions” in Excel 2016 23 Using User-Defined Functions 24 Creating Graphics 26 Creating Charts in a Chart Sheet 26 Creating Embedded Charts 27 Formatting Charts 28 Changing the Chart Type 29 Creating Sparkline Charts 31 Printing 32 Using Excel with Other Applications 33 Quitting Excel 34 Best Practices for Spreadsheet Models 35 Summary 36 Problems 37 Internet Exercise 40 CHAPTER 2 The Basic Financial Statements 41 The Income Statement 42 Building an Income Statement in Excel 42 The Balance Sheet 47 Building a Balance Sheet in Excel 47 Improving Readability: Custom Number Formats 49 Common-Size Financial Statements 52 Creating Common-Size Income Statements 52 Creating a Common-Size Balance Sheet 54 Building a Statement of Cash Flows 55 Using Excel’s Outliner 60 Common-Size Statement of Cash Flows 62 Summary 65 Problems 66 Internet Exercise 68 CHAPTER 3 Financial Statement Analysis Tools 69 Liquidity Ratios 70 The Current Ratio 71 The Quick Ratio 72
v Contents Efficiency Ratios 73 Inventory Turnover Ratio 73 Accounts Receivable Turnover Ratio 74 Average Collection Period 74 Fixed Asset Turnover Ratio 75 Total Asset Turnover Ratio 76 Leverage Ratios 77 The Total Debt Ratio 77 The Long-Term Debt Ratio 78 The Long-Term Debt to Total Capitalization Ratio 78 The Debt to Equity Ratio 79 The Long-Term Debt to Equity Ratio 80 Coverage Ratios 80 The Times Interest Earned Ratio 80 The Cash Coverage Ratio 81 Profitability Ratios 82 The Gross Profit Margin 82 The Operating Profit Margin 83 The Net Profit Margin 83 Return on Total Assets 84 Return on Equity 84 Return on Common Equity 85 DuPont Analysis 85 Analysis of EPI’s Profitability Ratios 87 Financial Distress Prediction 88 The Original Z-Score Model 88 The Z-Score Model for Private Firms 90 Using Financial Ratios 90 Trend Analysis 90 Comparing to Industry Averages 91 Company Goals and Debt Covenants 93 Automating Ratio Analysis 93 Economic Profit Measures of Performance 95 Summary 98 Problems 101 Internet Exercise 102 CHAPTER 4 The Cash Budget 103 The Worksheet Area 105 Using Date Functions 105
Contents vi Calculating Text Strings 106 Sales and Collections 107 Purchases and Payments 109 Collections and Disbursements 110 Calculating the Ending Cash Balance 112 Repaying Short-Term Borrowing 114 Using the Cash Budget for What-If Analysis 115 The Scenario Manager 117 Adding Interest and Investment of Excess Cash 121 Calculating Current Borrowing 123 Using the Formula Auditing Tools to Avoid Errors 123 Calculating Current Investing 127 Working Through the Example 128 Summary 131 Problems 133 CHAPTER 5 Financial Statement Forecasting 139 The Percent of Sales Method 140 Forecasting the Income Statement 140 Forecasting Assets on the Balance Sheet 144 Forecasting Liabilities on the Balance Sheet 146 Discretionary Financing Needed 147 Using Iteration to Eliminate DFN 149 Other Forecasting Methods 152 Linear Trend Extrapolation 152 Regression Analysis 156 Statistical Significance 160 Summary 163 Problems 164 Internet Exercises 166 CHAPTER 6 Forecasting Sales with Time Series Methods 167 Time Series Decomposition 168 Smoothing a Time Series with Moving Averages 169 Isolating the Seasonality of a Time Series 171 Extracting the Irregular Component 172 Time Series Forecasting Techniques 173 Measuring Forecast Errors 174 Exponential Smoothing Methods 174
vii Contents Simple Exponential Smoothing 175 Holt’s Linear Trend Exponential Smoothing Model 177 Forecasting Time Series with Both Trend and Seasonality 179 Holt-Winters Additive Seasonal Model 180 Using the Built-in ETS Model 182 Holt-Winters Multiplicative Seasonal Model 184 Time Series Forecasting Using Regression Analysis 186 Forecasting the Trend Using Regression 186 Using Seasonal Dummy Variables to Account for Seasonality 188 Summary 191 Problems 192 Internet Exercise 193 CHAPTER 7 Break-Even and Leverage Analysis 195 Break-Even Points 196 Calculating Break-Even Points in Excel 197 Other Break-Even Points 199 Using Goal Seek to Calculate Break-Even Points 201 Leverage Analysis 202 The Degree of Operating Leverage 203 The Degree of Financial Leverage 205 The Degree of Combined Leverage 207 Extending the Example 208 Linking Break-Even Points and Leverage Measures 209 Summary 210 Problems 212 Internet Exercise 213 CHAPTER 8 The Time Value of Money 215 Future Value 216 Using Excel to Find Future Values 217 Present Value 218 Annuities 219 Present Value of an Annuity 220 Future Value of an Annuity 222 Solving for the Annuity Payment 224 Solving for the Number of Periods in an Annuity 225 Solving for the Interest Rate in an Annuity 226 Deferred Annuities 228
Contents viii Graduated Annuities 230 Present Value of a Graduated Annuity 230 Future Value of a Graduated Annuity 233 Solving for the Graduated Annuity Payment 234 Uneven Cash Flow Streams 234 Solving for the Yield in an Uneven Cash Flow Stream 236 Nonannual Compounding Periods 237 Continuous Compounding 241 Summary 242 Problems 243 CHAPTER 9 Common Stock Valuation 247 What Is Value? 248 Fundamentals of Valuation 249 Determining the Required Rate of Return 250 A Simple Risk Premium Model 251 CAPM: A More Scientific Model 251 Valuing Common Stocks 254 The Constant-Growth Dividend Discount Model 255 The Two-Stage Growth Model 260 Three-Stage Growth Models 262 Alternative Discounted Cash Flow Models 266 The Earnings Model 266 The Free Cash Flow Model 270 Relative Value Models 273 Preferred Stock Valuation 275 Summary 277 Problems 278 Internet Exercise 280 CHAPTER 10 Bond Valuation 283 Bond Valuation 284 Valuing Bonds between Coupon Dates 286 Using Excel’s Advanced Bond Functions 288 Bond Return Measures 291 Current Yield 291 Yield to Maturity 292
ix Contents Yield to Call 294 Returns on Discounted Debt Securities 296 The U.S. Treasury Yield Curve 298 Bond Price Sensitivities 300 Changes in the Required Return 300 Changes in Term to Maturity 302 Comparing Two Bonds with Different Maturities 305 Comparing Two Bonds with Different Coupon Rates 307 Duration and Convexity 308 Duration 308 Modified Duration 310 Visualizing the Predicted Price Change 311 Convexity 313 Summary 315 Problems 318 Internet Exercise 320 CHAPTER 11 The Cost of Capital 321 The Appropriate Hurdle Rate 322 The Weighted Average Cost of Capital 323 Determining the Weights 324 WACC Calculations in Excel 325 Calculating the Component Costs 326 The Cost of Common Equity 327 The Cost of Preferred Equity 328 The Cost of Debt 329 Using Excel to Calculate the Component Costs 330 The After-Tax Cost of Debt 330 The Cost of Preferred Stock 332 The Cost of Common Stock 332 The Role of Flotation Costs 333 Adding Flotation Costs to Our Worksheet 334 The Cost of Retained Earnings 335 The Marginal WACC Curve 336 Finding the Break-Points 336 Creating the Marginal WACC Chart 340 Summary 342 Problems 342 Internet Exercise 344
Contents x CHAPTER 12 Capital Budgeting 347 Estimating the Cash Flows 348 The Initial Outlay 349 The Annual After-Tax Operating Cash Flows 350 The Terminal Cash Flow 351 Estimating the Cash Flows: An Example 352 Calculating the Relevant Cash Flows 357 Making the Decision 358 The Payback Method 359 The Discounted Payback Period 361 Net Present Value 363 The Profitability Index 365 The Internal Rate of Return 366 Problems with the IRR 367 The Modified Internal Rate of Return 369 Sensitivity and Scenario Analysis 372 NPV Profile Charts 372 Scenario Analysis 373 The Optimal Capital Budget 376 Optimal Capital Budget without Capital Rationing 376 Optimal Capital Budget under Capital Rationing 378 Other Techniques 383 Summary 383 Problems 384 CHAPTER 13 Risk and Capital Budgeting 389 Review of Some Useful Statistical Concepts 390 The Expected Value 390 Measures of Dispersion 392 Using Excel to Measure Risk 395 The Freshly Frozen Fish Company Example 395 Introducing Uncertainty 399 Sensitivity Analysis 399 Scenario Analysis 404 Calculating the Expected NPV from the Scenarios 406 Calculating the Variance and Standard Deviation 407 Calculating the Probability of a Negative NPV 409 Monte Carlo Simulation 410 The Risk-Adjusted Discount Rate Method 417 The Certainty-Equivalent Approach 418
xi Contents Summary 420 Problems 422 CHAPTER 14 Portfolio Statistics and Diversification 425 Portfolio Diversification Effects 426 Determining Portfolio Risk and Return 428 Portfolio Standard Deviation 429 Changing the Weights 432 Portfolios with More than Two Securities 434 Creating a Variance/Covariance Matrix 434 Calculating the Portfolio Standard Deviation 438 The Efficient Frontier 439 Locating Portfolios on the Efficient Frontier in Excel 440 Charting the Efficient Frontier 443 The Capital Market Line 445 Charting the Capital Market Line 448 Identifying the Market Portfolio 449 Utility Functions and the Optimal Portfolio 452 Charting Indifference Curves 452 The Capital Asset Pricing Model 454 The Security Market Line 455 Summary 457 Problems 458 Internet Exercise 461 CHAPTER 15 Writing User-Defined Functions with VBA 463 What Is a Macro? 464 Two Types of Macros 464 The Visual Basic Editor 466 The Project Explorer 467 The Code Window 468 The Parts of a Function 468 Writing Your First User-Defined Function 469 Writing More Complicated Functions 473 Variables and Data Types 473 The If-Then-Else Statement 475 Looping Statements 478 Using Worksheet Functions in VBA 481 Using Optional Arguments 482
Contents xii Using ParamArray for Unlimited Arguments 483 Debugging VBA Code 484 Breakpoints and Code Stepping 484 The Watch Window 485 The Immediate Window 486 Creating Excel Add-Ins 487 Best Practices for VBA 488 Summary 489 Problems 490 CHAPTER 16 Analyzing Datasets with Tables and Pivot Tables 493 Creating and Using an Excel Table 494 Removing Duplicate Records from the Table 496 Filtering the Table 497 Sorting and Filtering Numeric Fields 498 Structured Referencing for Formulas in Tables 500 Using Get & Transform 501 Cleaning the Dataset 503 An Example Data Query 503 Using Pivot Tables 505 Creating a Pivot Table 505 Formatting the Pivot Table 507 Rearranging the Pivot Table and Adding Fields 510 Transforming the Data Field Presentation 511 Calculations in Pivot Tables 512 Pivot Tables for Financial Statements 513 Grouping Data by Date 515 Using Pivot Charts to Show Trends Over Time 517 Displaying Multiple Subtotals 518 Using Calculated Fields for Financial Ratios 519 Filtering Data with Slicers and Timelines 521 Extracting Data from a Pivot Table 522 Summary 523 Problems 524 Internet Exercise 527 APPENDIX Directory of User-Defined Functions in FameFncs.xlam 529 INDEX 533
xiii Preface Electronic spreadsheets have been available for microcomputers since the introduction of VisiCalc® for the Apple I in June 1979. The first version of Lotus 1-2-3® in January 1983 convinced businesses that the IBM PC was a truly useful productivity-enhancing tool. Today, any student who leaves business school without at least basic spreadsheet skills is truly at a disadvantage. Much as earlier generations had to be adept at using a slide rule or financial calculator, today’s manager needs to be proficient in the use of a spreadsheet. International competition means that companies must be as efficient as possible. No longer can managers count on having a large staff of “number crunchers” at their disposal. Microsoft first introduced Excel in 1985 for the Apple Macintosh and showed the world that spreadsheets could be both powerful and easy to use, not to mention fun. Excel 2.0 was introduced to the PC world in 1987 for Microsoft Windows version 1.0, where it enjoyed something of a cult following. With the introduction of version 3.0 of Windows, sales of Excel exploded so that today it is the leading spreadsheet on the market. As of this writing, Excel 2016 (also known as Excel version 16) is the current version. Unlike Excel 2007, which introduced the Ribbon interface, Excel 2016 is more evolutionary than revolutionary. The changes are mostly cosmetic, though the addition of Get & Transform is a truly valuable new feature (see Chapter 16). While the book has been written with the current version in mind, it can be used with older versions, if allowances are made for minor interface differences. The user interface has always been different on the Apple Mac, but Excel 2016 for Mac supports virtually all of the features discussed in this book (the Analysis ToolPak add-in was finally added in this version). The major missing features are pivot charts and the Get &
Preface xiv Transform tools. Both of those features are used in Chapter 16, but Get & Transform is also used in Chapter 10 to get yield curve data from the U.S. Treasury Web site. Mac users can access the yield curve data by using the From Web tool in Get External Data instead. I have made a document, Fame 8e Guide for Mac Users.pdf, that is available on the Financial Analysis with Microsoft Excel, 8th ed. Instructor Companion Web site. Purpose of the Book Financial Analysis with Microsoft Excel, 8th ed. was written to demonstrate useful spreadsheet techniques and tools in a financial context. This allows readers to see the material in a way with which they are familiar. For students just beginning their education in finance, the book provides a thorough explanation of all of the concepts and equations that are usually covered. In other words, it is a corporate finance textbook, but it uses Excel instead of financial calculators. Students with no prior experience with spreadsheets will find that using Excel is very intuitive, especially if they have used other Windows applications. For these students, Financial Analysis with Microsoft Excel, 8th ed. will provide a thorough introduction to the use of spreadsheets from basic screen navigation skills to building fairly complex financial models. I have found that even students with good spreadsheet skills have learned a great deal more about using Excel than they expected. Finally, I feel strongly that providing pre-built spreadsheet templates for students to use is a disservice. For this reason, this book concentrates on spreadsheet building skills. I believe that students can gain valuable insights and a deeper understanding of financial analysis by actually building their own spreadsheets. By creating their own spreadsheets, students will have to confront many issues that might otherwise be swept under the carpet. It continually amazes me how thankful students are when they are actually forced to think rather than just to “plug and go.” For this reason the book concentrates on spreadsheet building skills (though all of the templates are included for instructors) so that students will be encouraged to think and truly understand the problems on which they are working. Target Audience Financial Analysis with Microsoft Excel is aimed at a wide variety of students and practitioners of finance. The topics covered generally follow those in an introductory financial management course for undergraduates or first-year MBA students. Because of the emphasis on spreadsheet building skills, the book is also appropriate as a reference for case- oriented courses in which the spreadsheet is used extensively. I have been using the book in
xv Organization of the Book my Financial Modeling course since 1995, and students consistently say that it is the most useful course they have taken. A sizable number of my former students have landed jobs due to their superior spreadsheet skills. I have tried to make the book complete enough that it may also be used for self-paced learning, and, if my e-mail is any guide, many have successfully taken this route. I assume, however, that the reader has some familiarity with the basic concepts of accounting and statistics. Instructors will find that their students can use this book on their own time to learn Excel, thereby minimizing the amount of class time required for teaching the rudiments of spreadsheets. Practitioners will find that the book will help them transfer skills from other spreadsheets to Excel and, at the same time, refresh their knowledge of corporate finance. A Note to Students As I have noted, this book is designed to help you learn finance and understand spreadsheets at the same time. Learning finance alone can be a daunting task, but I hope that learning to use Excel at the same time will make your job easier and more fun. Be sure to experiment with the examples by changing numbers and creating charts. You will likely find that learning the material and skills presented is more difficult if you do not work the examples presented in each chapter. While this will be somewhat time consuming, I encourage you to work along with, rather than just read, the book as each example is discussed. Further, I suggest that you try to avoid the trap of memorizing Excel formulas. Instead, try to understand the logic of the formula so that you can more easily apply it in other, slightly different, situations in the future. Make sure that you save your work often, and keep a current backup. Organization of the Book Financial Analysis with Microsoft Excel, 8th ed. is organized along the lines of an introductory financial management textbook. The book can stand alone or be used as an adjunct to a regular text, but it is not “just a spreadsheet book” and shouldn’t be treated as a cookbook with recipes. In most cases, topics are covered at the same depth as the material in conventional textbooks; in many cases, the topics are covered in greater depth. For this reason, I believe that Financial Analysis with Microsoft Excel, 8th ed. can be used as a comprehensive primary text. The book is organized as follows: • Chapter 1: Introduction to Excel 2016 • Chapter 2: The Basic Financial Statements
Preface xvi • Chapter 3: Financial Statement Analysis Tools • Chapter 4: The Cash Budget • Chapter 5: Financial Statement Forecasting • Chapter 6: Forecasting Sales with Time Series Methods • Chapter 7: Break-Even and Leverage Analysis • Chapter 8: The Time Value of Money • Chapter 9: Common Stock Valuation • Chapter 10: Bond Valuation • Chapter 11: The Cost of Capital • Chapter 12: Capital Budgeting • Chapter 13: Risk and Capital Budgeting • Chapter 14: Portfolio Statistics and Diversification • Chapter 15: Writing User-Defined Functions with VBA • Chapter 16: Analyzing Datasets with Tables and Pivot Tables • Appendix: Directory of User-Defined Functions in FameFncs.xlam Extensive use of built-in functions, charts, and other tools (e.g., Scenario Manager and Solver) throughout the book encourages a much deeper exploration of the models presented than do more traditional methods. Questions such as, “What would happen if...” are easily answered with the tools and techniques taught in this book. Outstanding Features The most outstanding feature of Financial Analysis with Microsoft Excel, 8th ed. is its use of Excel as a learning tool rather than just a fancy calculator. Students using the book will be able to demonstrate to themselves how and why things are the way they are. Once students create a worksheet, they understand how it works and the assumptions behind the calculations. Thus, unlike the traditional “template” approach, students gain a deeper understanding of the material. In addition, the book greatly facilitates the professors’ use of spreadsheets in their courses. The text takes a self-teaching approach used by many other “how-to” spreadsheet books, but it provides opportunities for much more in-depth experimentation than the competition. For
xvii Outstanding Features example, scenario analysis is an often recommended technique, but it is rarely demonstrated in any depth. This book uses the tools that are built into Excel to greatly simplify computation-intensive techniques, eliminating the boredom of tedious calculation. Other examples include regression analysis, linear and nonlinear programming, and Monte Carlo simulation. The book encourages students to actually use the tools that they have learned about in their statistics and management science classes. Pedagogical Features Financial Analysis with Microsoft Excel, 8th ed. begins by teaching the basics of Excel. Then, the text uses Excel to build the basic financial statements that students encounter in all levels of financial management courses. This coverage then acts as a “springboard” into more advanced material such as performance evaluation, forecasting, valuation, capital budgeting, and modern portfolio theory. Each chapter builds upon the techniques learned in prior chapters so that the student becomes familiar with Excel and finance at the same time. This type of approach facilitates the professor’s incorporation of Excel into a financial management course since it reduces, or eliminates, the necessity of teaching spreadsheet usage in class. It also helps students to see how this vital “tool” is used to solve the financial problems faced by practitioners. The chapters are organized so that a problem is introduced, solved by traditional methods, and then solved using Excel. I believe that this approach relieves much of the quantitative complexity while enhancing student understanding through repetition and experimentation. This approach also generates interest in the subject matter that a traditional lecture cannot (especially for nonfinance business majors who are required to take a course in financial management). Once they are familiar with Excel, my students typically enjoy using it and spend more time with the subject than they otherwise would. In addition, since charts are used extensively (and are created by the student), the material may be better retained. A list of learning objectives precedes each chapter, and a summary of the major Excel functions discussed in the chapter is included at the end. In addition, each chapter contains homework problems, and many include Internet Exercises that introduce students to sources of information on the Internet. Supplements The Instructor’s Manual and other resources, available online, contain the following: (These materials are available to registered instructors at the Instructor Companion Web site for Financial Analysis with Microsoft Excel, 8th ed., www.cengagebrain.com). • The completed worksheets with solutions to all problems covered in the text. Having this material on the Instructor Companion Web site (www.cengagebrain.com) allows the instructor to easily create transparencies or give live demonstrations via computer projec- tions in class without having to build the spreadsheets from scratch.
Preface xviii • Additional Excel spreadsheet problems for each chapter that relate directly to the con- cepts covered in that chapter. Each problem requires the student to build a worksheet to solve a common financial management problem. Often the problems require solutions in a graphical format. • Complete solutions to the in-text homework problems and those in the Instructor’s Manual and on the Instructor Companion Web site, along with clarifying notes on techniques used. • An Excel add-in program that contains some functions that simplify complex calcula- tions such as the two-stage common stock valuation model and the payback period, among many others (see the Appendix for a complete listing of the functions). Also included is an add-in program for performing Monte-Carlo simulations discussed exten- sively in Chapter 13, and an add-in to create “live” variance/covariance matrices. These add-ins are available on the Web site. Typography Conventions The main text of this book is set in the 10-point Times New Roman True Type font. Text or numbers that readers are expected to enter are set in the 10 point Courier New True Type font. The names of built-in functions are set in small caps and boldface. Function arguments can be either required or optional. Required inputs are set in small caps and are italicized and boldface. Optional inputs are set in small caps and italicized. As an example, consider the PV function (introduced in Chapter 8): PV(RATE, NPER, PMT, FV, TYPE) In this example, PV is the name of the function, RATE, NPER, and PMT, are the required arguments, while FV and TYPE are optional. In equations and the text, equation variables (which are distinct from function arguments) are italicized. As an example, consider the PV equation: I hope that these conventions will help avoid confusion due to similar terms being used in different contexts. PV FVN 1 i + ( ) N ------------------ =
xix A Note on the Internet Changes from the 7th Edition The overall organization of the book remains similar, but there have been many changes throughout the book. All of the chapters have been updated, but the more important changes include: Chapter 1—Updated for Excel 2016, including coverage of the new charting interface that uses buttons for chart elements and panels for formatting. Chapter 6—This is a completely new chapter covering the use of time series forecasting techniques for forecasting revenue. It includes a method of decomposing a time series into its component parts, as well as forecasting techniques that deal with trends and seasonality. Chapter 8—Added to the coverage of graduated annuities with a discussion of how to calculate the payment amount. In addition, the existing user-defined functions were reworked so as to be more consistent with the built-in time value functions. Chapter 10—Added a method of calculating the convexity of a bond on any date using the built-in PRICE function. This method is simple but is still a close approximation. I have also updated the FAME_CONVEXITY function to calculate exact convexity on any date. Additionally, I have used the Get & Transform (see below) tools to query the U.S. Treasury Web site for data used to create the yield curve. Chapter 16—Added coverage of the new Get & Transform tool that is available on the Data tab. This is a very powerful tool that is used to query database files, Excel worksheets, and Web sites. It is essentially a built-in ETL (Extract, Transform, and Load) tool that makes processing internal or external data much easier than before. In addition, I swapped the positions of Chapters 3 and 4 so that coverage of financial ratios now follows coverage of financial statements. A Note on the Internet I have tried to incorporate Internet Exercises into those chapters where the use of the Internet is applicable. In many cases, the necessary data simply is not available to the public or very difficult to obtain online (e.g., cash budgeting), so some chapters do not have Internet Exercises. For those chapters that do, I have tried to describe the steps necessary to obtain the data—primarily from either the SEC’s Edgar System or Yahoo! Finance. It should be noted that Web sites change frequently and these instructions and URLs may change in the future. I chose the Edgar System and Yahoo! Finance because I believe that these sites are the least likely to undergo severe changes and/or disappear completely. In many cases, there are alternative sites from which the data can be obtained if it is no longer available from the given site. All Excel spreadsheets for students’ and instructors’ use (as referenced in the book) are available at the Student and Instructor Companion Web sites (www.cengagebrain.com).
Preface xx Acknowledgments All books are collaborative projects, with input from more than just the listed authors. This is true in this case as well. I wish to thank those colleagues and students who have reviewed and tested the book to this point. Any remaining errors are my sole responsibility, and they may be reported to me by e-mail. For this edition, I would like to thank two of my colleagues at Metro State: Qiongqi Xiao and Su-Jane Chen were very kind to review chapters or sections of chapters. Douglas Jordan of Sonoma State University also provided valuable input, particularly the suggestion of swapping Chapters 3 and 4. The input of the anonymous reviewers who responded to surveys is also greatly appreciated. I would also like to thank Debra Dalgleish, an author of several books on pivot tables, Microsoft Excel MVP, and a blogger at blog.contextures.com, for answering some technical questions about pivot tables. I would also like to thank the several reviewers who spent a great deal of time and effort reading over the previous editions. These reviewers are Tom Arnold of the University of Richmond, Denise Bloom of Viterbo University, David Suk of Rider College, Mark Holder of Kent State University, Scott Ballantyne of Alvernia College, John Stephens of Tri State University, Jong Yi of California State University Los Angeles, and Saiyid Islam of Virginia Tech. I sincerely appreciate their efforts. In particular, I would like to thank Nancy Jay of Mercer University–Atlanta for her scrupulous editing of the chapters and homework problems in the first three editions. Many people long ago provided invaluable help on the first and second editions of this text, and their assistance is still appreciated. Professional colleagues include Ezra Byler, Anthony Crawford, Charles Haley, David Hua, Stuart Michelson, Mohammad Robbani, Gary McClure, and John Settle. In addition, several of my now former students at Metropolitan State University of Denver were helpful—most especially, Peter Ormsbee, Marjo Turkki, Kevin Hatch, Ron LeClere, Christine Schouten, Edson Holland, Mitch Cohen, and Theresa Lewingdon. Finally, I wish to express my gratitude to Joe Sabatino (Senior Product Team Manager), Julie Dierig (Project Manager), and Tara Slagle (Senior Content Project Manager) of the Cengage Learning team. Without their help, confidence, and support, this book would never have been written. To anybody I have forgotten, I heartily apologize. I encourage you to send your comments and suggestions, however minor they may seem to you, to mayest@msudenver.edu. Timothy R. Mayes December 2016
1 CHAPTER 1 Introduction to Excel 2016 The term “spreadsheet” covers a wide variety of elements useful for quantitative analysis of all kinds. Essentially, a spreadsheet is a simple tool consisting of a matrix of cells that can store numbers, text, or formulas. The spreadsheet’s power comes from its ability to recalculate results as you change the contents of other cells. No longer does the user need to do these calculations by hand or on a calculator. Instead, with a properly constructed spreadsheet, changing a single number (say, a sales forecast) can result in literally thousands of automatic changes in the model. The freedom and productivity enhancement provided by modern spreadsheets present an unparalleled opportunity for learning financial analysis. After studying this chapter, you should be able to: 1. Explain the basic purpose of a spreadsheet program. 2. Identify the various components of the Excel screen. 3. Navigate the Excel worksheet (entering, correcting, and moving data within the worksheet). 4. Explain the purpose and usage of Excel’s built-in functions and user-defined functions. 5. Create graphics and know how to print and save files in Excel.
CHAPTER 1: Introduction to Excel 2016 2 Spreadsheet Uses Spreadsheets today contain built-in analytical capabilities previously unavailable in a single package. Years ago, users often had to learn a variety of specialized software packages to do any relatively complex analysis. With the newest versions of Microsoft Excel, users can perform tasks ranging from the routine maintenance of financial statements to multivariate regression analysis to Monte Carlo simulations of hedging strategies. It is impossible to enumerate all of the possible applications for spreadsheets. You should keep in mind that spreadsheets are useful not only for financial analysis but also for any type of quantitative analysis whether your specialty is in marketing, management, engineering, statistics, or economics. For that matter, a spreadsheet can also prove valuable for personal uses. With Excel, it is a fairly simple matter to build a spreadsheet to monitor your investment portfolio, plan for retirement, experiment with various mortgage options when buying a house, create and maintain a mailing list, and so on. The possibilities are quite literally endless. The more comfortable you become with the spreadsheet, the more uses you will find. Using a spreadsheet can help you find solutions that you never would have imagined on your own. Above all, feel free to experiment and try new things as you gain more experience working with spreadsheet programs, particularly Excel. The above is not meant to suggest that Excel is the only analytical tool you’ll ever need. For example, Excel is not meant to be a relational database, though it has some tools that allow it to work well for small databases (see Chapter 16). For bigger projects, however, Excel can serve as a very effective “front-end” interface to a database. It also isn’t a complete replacement for a dedicated statistics program, though it can work well for many statistical problems. Although Excel can be made to do just about anything, it isn’t always the best tool for the job. Still, it may well be the best tool that you or your colleagues know how to use. Starting Microsoft Excel Start Excel by double-clicking on the program’s icon. The location of the Excel icon will depend on the organization of your system. You may have the Excel icon (at left) on the desktop or in the taskbar. Otherwise, you can start Excel by clicking the Start button and then clicking the Excel 2016 tile, or type Excel into the search box at the bottom of the Start menu. If you have Windows 10 and a microphone, then you can even tell Cortana to “start Excel 2016.” For easier access, you may wish to create a Desktop or Taskbar shortcut. To do this, click on the Excel icon in the All Apps menu and drag the icon to the Desktop or Taskbar. Remember that a shortcut is not the program itself, so you can safely delete the shortcut if you later decide that you no longer need it. Excel 2016 Icon
3 Parts of the Excel Screen Parts of the Excel Screen If you have used any recent version of Excel, then you will be familiar with most of the user interface in Excel 2016. In Figure 1-1, note the labeled parts of the Excel screen. We will examine most of these parts separately. Please refer to Figure 1-1 as you read through each of the sections that follow. FIGURE 1-1 MICROSOFT EXCEL 2016 The File Tab and Quick Access Toolbar The File tab in Excel 2016 is similar to the File menu in most other Windows programs. It can be opened either by clicking the tab or by pressing Alt-F. Click the File tab when you need to open, save, print, or create a new file. The File tab also contains additional functionality. It opens in what is known as Backstage View, which takes over the entire window. This additional space, compared to a menu, allows for much more information to be displayed. For example, if you click the Print tab on the left side, you get access not only to all of the print settings but also to print preview on the same page. The Info tab is where you can set the document properties (author, keywords, etc.), inspect the document for hidden data that may reveal private details, encrypt the spreadsheet, and so on.
CHAPTER 1: Introduction to Excel 2016 4 Finally, the File tab is the pathway to setting the program options. At the bottom of the tabs on the left you will find a link to Options. This launches the Excel Options dialog box where you can set all of the available options. It is advisable to go through the Excel Options to familiarize yourself with some of the things that you can control. While you may not understand all of the choices, at least you will know where to go when you need to change something (e.g., the user name, macro security level, or the default file locations). You also have the ability to customize the Ribbon. Click the File tab, choose Options, and then select Customize Ribbon in the dialog box. Here you can create new tabs, move buttons from one tab to another, remove them completely, and even export your customizations so that others can use them. The Quick Access toolbar (typically abbreviated as QAT) is located above the File tab and, by default, provides a button to save the current file as well as the Undo and Redo buttons. If you regularly use commands that aren’t located on the Home tab, you can easily customize the Quick Access toolbar to add those commands by right-clicking the QAT and choosing “Customize Quick Access Toolbar….” The dialog box is self-explanatory. You can also add or remove commands, such as Print Preview, by clicking the arrow to the right of the QAT. The Home Tab FIGURE 1-2 EXCEL 2016 HOME TAB Immediately below the title bar, Excel displays the various tabs in what is known as the Ribbon. Tabs are the toolbars that replaced the menus of pre-2007 versions. The Home tab contains the most commonly used commands, including the Cut, Copy, and Paste buttons, and the various cell formatting buttons. You can learn what function each button performs by letting the mouse pointer hover over a button. After a few seconds, a message will appear that informs you of the button’s function. This message is known as a ToolTip. ToolTips are used frequently by Excel to help you identify the function of various items on the screen. Note that several of the buttons (e.g., the Copy and Paste buttons) on the Ribbon have a downward-pointing arrow. This is a signal that the button has options besides the default behavior. For example, by clicking the arrow on the Paste button you will find that there are several choices regarding what to paste (e.g., just the formula, or the value without the formula). Clicking the upper half of a split button invokes the default purpose.
5 Parts of the Excel Screen The other tabs are named according to their functionality, and you will quickly learn which one to choose in order to carry out a command. Table 1-1 shows the other tabs and a short description of what they do. Note that another set of tabs will appear when you are working on charts. The Design and Format tabs contain all of the options that you will need for working with charts (see “Creating Graphics” on page 26). Furthermore, add-in programs may create additional tabs. TABLE 1-1 OTHER TABS IN THE EXCEL 2016 RIBBON Tab What It Does File File management features (open, save, close, print, etc.) and options. Insert Contains buttons for inserting pivot tables, charts, pictures, shapes, text boxes, equations, and other objects. Page Layout Has choices that control the look of the worksheet on the screen and when printed. You can change the document theme, the page margins and orientation, and so on. Formulas This is where to go when you want to insert a formula, create a defined name for a cell or range, or use the formula auditing tools to find errors. Data Contains buttons to guide you through getting data from other sources (such as an Access database, a Web site, or a text file). Launch tools such as the Scenario Manager, Goal Seek, Solver, and the Analysis Toolpak. Review Here you will find spell check, the thesaurus, and also commands for working with cell comments and worksheet protection. View Contains commands that control the worksheet views, zoom controls, and the visibility of various objects on the screen (such as gridlines and the formula bar). Developer Has tools that allow you to access the VBA editor, insert controls (e.g., dropdown lists), and work with XML. This tab is not visible by default, but can be enabled in Options. Add-ins This is where older Excel add-ins that create custom tool bars and menus will be located. Not visible unless older add-ins are installed. Power Pivot Power Pivot is an add-in for certain versions of Excel. It allows you to work with data files that are much larger than Excel can normally handle.
CHAPTER 1: Introduction to Excel 2016 6 The Formula Bar As you work more in Excel to create financial models, you will find that the formula bar is one of its most useful features. The formula bar displays information about the currently selected cell, which is referred to as the active cell. The left part of the formula bar indicates the name or address of the selected cell (H9 in Figure 1-3). The right part of the formula bar displays the contents of the selected cell. If the cell contains a formula, the formula bar displays the formula while the cell itself displays the result of the formula. If text or numbers have been entered, then the text or numbers are displayed. FIGURE 1-3 THE EXCEL 2016 FORMULA BAR The fx button on the formula bar is used to show the Insert Function dialog box. This dialog box helps you to find and enter functions without having to memorize them. It works the same as the Insert Function button on the Formulas tab. See page 21 for more information. The chevron at the right of the formula bar is used to expand the formula bar. This is useful if you have long formulas that occupy more than one line. You can break long formulas across multiple lines by pressing Alt+Enter where you want the line to break. If you do this, then you can expand the formula bar even further by dragging its lower edge. The Worksheet Area The worksheet area is where the real work of the spreadsheet is done. The worksheet is a matrix of cells (1,048,576 rows by 16,384 columns),1 each of which can contain text, numbers, or formulas. Each cell is referred to by a column letter and a row number. Column letters (A, B, C, …, XFD) are listed at the top of each column, and row numbers (1, 2, 3, …, 1048576) are listed to the left of each row. The cell in the upper left corner of the worksheet is therefore referred to as cell A1, the cell immediately below A1 is referred to as cell A2, the cell to the right of A1 is cell B1, and so on. This naming convention is common to all spreadsheet programs. If not already, you will become comfortable with it once you have gained some experience working in Excel. The active cell can be identified by a solid black border around the cell. Note that the active cell is not always visible on the screen, but its address is always named in the leftmost portion of the formula bar. In the lower-right corner is the AutoFill handle (see page 11). 1. This is known as the “big grid” because it is much larger than in pre-2007 versions of Excel, which only supported up to 65,536 rows and 256 columns.
7 Parts of the Excel Screen Sheet Tabs FIGURE 1-4 THE SHEET TABS Excel worksheets are stored in a format that allows you to combine multiple worksheets into one file known as a workbook. This allows several related worksheets to be contained in one file for easy access. The sheet tabs, near the bottom of the screen, enable you to move easily from one sheet to another in a workbook. You may rename, copy, or delete any existing sheet or insert a new sheet by right-clicking a sheet tab with the mouse and making a choice from the resulting menu. You can change the order of the sheet tabs by clicking a tab and dragging it to a new position, or you can press the Ctrl key (option on Mac) and drag to copy it. To insert a new worksheet, click the New Sheet button to the right of the last worksheet. It is easy to do any of these operations on multiple worksheets at once, except for renaming. Simply click the first sheet and then Ctrl+click each of the others. (You can select a contiguous group of sheets by selecting the first and then Shift+click the last.) Now, right- click one of the selected sheets and select the appropriate option from the pop-up menu. When sheets are grouped, anything you do to one sheet gets done to all. This feature is useful if, for example, you need to enter identical data into multiple sheets or need to perform identical formatting on several sheets. To ungroup the sheets, either click on any nongrouped sheet or right-click a sheet tab and choose Ungroup Sheets from the pop-up menu. Another feature in Excel 2016 allows you to choose a color for each sheet tab by right-clicking the tab and choosing a Tab Color from the pop-up menu. The transport buttons to the left of the sheet tabs allow you to scroll through the list of sheet tabs. Right-clicking either of these buttons will display a pop-up menu that allows you to quickly jump to any sheet tab in the workbook. This is especially helpful when you have too many tabs for them all to be shown. Status Bar The status bar, located below the sheet tabs, contains information regarding the current state of Excel, as well as certain messages. For example, most of the time the only message is “Ready” indicating that Excel is waiting for input. At other times, Excel may add “Calculate” to the status bar to indicate that it needs to recalculate the worksheet because of changes. You can also direct Excel to do certain calculations on the status bar. For example, in Figure 1-5, Excel is showing the average, count, and sum of the highlighted cells in the worksheet.
CHAPTER 1: Introduction to Excel 2016 8 FIGURE 1-5 THE STATUS BAR By right-clicking on this area of the status bar, you can also get Excel to calculate the count of numbers only, the minimum, or the maximum of any highlighted cells. This is useful when you need a quick calculation that doesn’t need to be in the worksheet. The right side of the status bar contains buttons to change the view of the worksheet (normal, page layout, and page break preview) as well as the zoom level. Navigating the Worksheet There are two principal ways for moving around within the worksheet area: the arrow keys and the mouse (or touchpad). For small distances the arrow keys provide an easy method of changing the active cell, but moving to more distant cells is usually easier with the mouse. Most keyboards have a separate keypad containing arrows pointing up, down, left, and right. If yours does not, then the numeric keypad can be used if the Num Lock function is off. You can use the Tab key to move one cell to the right. The Page Up and Page Down keys also work as you would expect. The mouse is even easier to use. When the mouse pointer is over the worksheet area, it will be in the shape of a fat cross. To change the active cell, move the mouse pointer over the destination cell and click. To move to a cell that is not currently displayed on the screen, click on the scroll bars until the cell is visible and then click on it. For example, if the active cell is A1 and you wish to make A100 the active cell, click on the scroll bar on the right hand part of the screen until A100 is visible. Move the mouse pointer over cell A100 and click with the left button. Each click on the scroll bar moves the worksheet up or down one page. If you wish to move up, click above the thumb. If down, click beneath the thumb. The thumb (or slider) is the button that moves up and down the scroll bar to indicate your position in the worksheet. To move more quickly, you can drag the thumb to the desired position. If you know the name or address of the cell to which you wish to move (for large worksheets remembering the cell address isn’t easy, but you can use named ranges), use the Go To command. The Go To command will change the active cell to whatever cell you indicate. The Go To dialog box can be used by clicking the Find & Select button on the Home tab and then choosing the Go To… command, by pressing the F5 function key, or by pressing the Ctrl+G key combination. To move to cell A50, simply press F5, type: A50 in the Reference box, and then press Enter. You will notice that cell A50 is now highlighted and visible on the
9 Navigating the Worksheet screen. You can also use Go To to find certain special cells (e.g., the last cell that has data in it) by pressing the Special… button in the Go To dialog box. Selecting a Range of Cells Many times you will need to select more than one cell at a time. For example, you may wish to apply a particular number format to a whole range of cells, or you might want to clear a whole range. Because it would be cumbersome to do this one cell at a time, especially for a large range, Excel allows you to simultaneously select a whole range and perform various functions on all of the cells at once. The easiest way to select a contiguous range of cells is to use the mouse. Simply point to the cell in the upper left corner of the range, and click and drag the mouse until the entire range is highlighted. As you drag the mouse, watch the left side of the formula bar. Excel will inform you of the number of selected rows and columns. In addition, the row and column headers will be highlighted for the selected cells. You can also use the keyboard to select a range. First change the active cell to the upper left corner of the range to be selected, press and hold down the Shift key, and use the arrow keys to highlight the entire range. Note that if you release the Shift key while pressing an arrow key, you will lose the selection. A very useful keyboard shortcut is the Shift+Ctrl+Arrow (any arrow key will work) combination. This is used to select all of the cells from the active cell up to, but not including, the first blank cell. For example, if you have 100 numbers in a column and need to apply a format, just select the first cell and then press Shift+Ctrl+Down arrow to select them all. This is faster and more accurate than using the mouse. Often it is also useful to select a discontiguous range (i.e., two or more unconnected ranges) of cells. To do this, simply select the first range as usual and then hold down the Ctrl key as you select the other ranges. Using Defined Names A named range is a cell, or group of cells, for which you have supplied a name. Named ranges can be useful in a number of different ways, but locating a range on a big worksheet is probably the most common use. To name a range of cells, start by selecting the range. For example, select A1:C5 and then choose Define Name from the Formulas tab. At the top of the New Name dialog box, enter a name, say MyRange (note that a range name cannot contain spaces or most special characters). Figure 1-6 shows how the dialog box should look. Note that the Refers to edit box shows the address to which the name refers.2 2. The name is actually defined as a formula. This is important for some of the more advanced uses of named ranges. For example, we can use a name to define constants, do calculations, or to create a reference to a range that grows as data is added.
CHAPTER 1: Introduction to Excel 2016 10 FIGURE 1-6 THE DEFINE NAME DIALOG BOX You can also enter a comment that provides more details about the range and control the scope of the name. Scope refers to the location within which the name doesn’t need to be qualified by a sheet name. For example, MyRange was defined to have Workbook scope. Therefore, we can refer to that range from any cell of the entire workbook by just using its name (=MyRange). However, if the scope had been restricted to Sheet1, then from Sheet2 we would refer to the name with =Sheet1!MyRange. Note that defined names must be unique within their scope. So you can only have one workbook-scoped range named MyRange, but you could have one MyRange per worksheet if it is scoped to the sheet level. Once the range is named, you can select it using the Go To command (Find & Select then Go To…, or press F5). The name will appear in the list on the Go To dialog box. An even faster method is to use the Name Box on the left side of the formula bar. Simply drop the list and choose the named range that you wish to select. Named ranges can be used in formulas in place of cell addresses and can be used in the SERIES function for charts. Defined names don’t have to refer to a cell or range. They can be used to define a constant or formula instead. For example, you might create the name Pi and in the Refers to box enter: =3.14159 instead of a cell or range address. You can use that name in formulas whenever you need the value of Pi, though Excel already has a PI function. As useful as they can be, there is no requirement for you to ever use defined names. Entering Text and Numbers Each cell in an Excel worksheet can be thought of as a miniature word processor. Text can be entered directly into the cell and then formatted in a variety of ways. To enter a text string, first select the cell where you want the text to appear and then begin typing. It is that simple.
11 Navigating the Worksheet Excel is smart enough to know the difference between numbers and text, so there are no extra steps for entering numbers. Let’s try the following example of entering numbers and text into the worksheet. Select cell A1 and type: Microsoft Corporation Sales. In cell A2, enter: (Millions of Dollars). Select A3 and type: 2011 to 2016. Note that the entry in cell A3 will be treated as text by Excel because of the spaces and letters included. In cells A4 to F4, we now want to enter the years. In A4 type: 2016, in B4 type: 2015, select A4:B4, and move the mouse pointer over the lower right corner of the selection. The mouse pointer will now change to a skinny cross indicating that you can use the AutoFill feature.3 Click and drag the mouse to the right to fill in the remaining years. Notice that the most recent data is entered at the left and the most distant data at the right. This convention allows us to easily recognize and concentrate on what is usually the most important data. We have set up the headings for our first worksheet. Now let’s add Microsoft’s sales (in millions of dollars) for the years 2011 to 2016 into cells A5 to F5 as shown in Exhibit 1-1. EXHIBIT 1-1 THE FIRST WORKSHEET Formatting and Alignment Options The worksheet in Exhibit 1-1 isn’t very attractive. Notice that the text is displayed at the left side of the cells, while the numbers are at the right. By default, this is the way that Excel aligns text and numbers. However, we can easily change the way that these entries are displayed through the use of the formatting and alignment options. Before continuing, we should define a few typographical terms. A “typeface” is a particular style of drawing letters and numbers. For example, the main text of this book is set in the Times New Roman typeface. However, the text that you are expected to enter into a worksheet is displayed in the Courier New typeface. Typeface also refers to whether the text is drawn in bold, italics, or perhaps bold italics. 3. AutoFill can be used to fill any series that Excel can recognize. For example, type January in a cell and drag the AutoFill handle to automatically fill in month names. You can define your own series by clicking the Edit Custom Lists button under General in the Advanced category of Options.
CHAPTER 1: Introduction to Excel 2016 12 The term “type size” refers to the size of the typeface. We normally refer to the type size in “points.” Each point represents an increment of 1/72nd of an inch, so there are 72 points to the inch. A typeface printed at a 12-point size is larger than the same typeface printed at a size of 10 points. Informally, we refer to the typeface and type size combination as a font. So when we say “change the font to 12-point bold Times New Roman,” it is understood that we are referring to a particular typeface (Times New Roman, bolded) and type size (12 points). For text entries, the term “format” refers to the typeface, size, text color, and cell alignment used to display the text. Let’s change the font of the text that was entered to Times New Roman, 12 points, bold. First, select the range A1:A3. Now, on the Home tab, click on the Font list so that the font choices are displayed and then select Times New Roman from the list. Next, click the Bold button and then choose 12 from the font size list. Notice that as you scroll through the Font and Size lists, the selected text is displayed as will look on the worksheet. This is known as Live Preview, and it works for many, but not all, of the formatting features in Excel 2016. Because none of these changes actually take effect until you validate them by clicking, you can scroll through the choices until the text looks exactly right. You can also make these changes by right-clicking the selected cells and choosing Format Cells… from the menu. The choices that we made can be found on the Font tab. We can just as easily change the font for numbers. Suppose that we want to change the years in cells A4:F4 to 12-point italic Times New Roman. First select the range A4:F4. Select the proper attributes from the Home tab, or right-click and choose Format Cells. Note that this change could also have been made at the same time as the text was changed, or you could now press Ctrl+Y to repeat the last action. You could also add the Repeat button to the Quick Access toolbar. Just click arrow at the right of the Quick Access toolbar and choose More Commands…. Now select the Repeat button and then click the Add button in the dialog box. Our worksheet is now beginning to take on a nicer look, but it still isn’t quite right. We are used to seeing titles nicely centered over the table, but our title is way over at the left. We can remedy this by using Excel’s alignment options. Excel provides for seven different horizontal alignments within a cell. We can have the text (or numbers) aligned with the left or right sides of the cell or centered within the cell boundaries. Excel also allows centering text across a range of cells. Let’s change the alignment of our year numbers first. Highlight cells A4:F4 and then click the Center button in the Alignment section of the Home tab. Notice that the numbers are all centered within their respective cells. Next, we will center our table title across the whole range of numbers that we have entered. To do this, select the entire range across which we want to center our titles. Highlight cells A1:F3 and select Format Cells from the right-click menu. Click on the Alignment tab and then select “Center across selection” from the Horizontal alignment list. Click on the OK button and notice that the titles are indeed centered across columns A to F.
13 Navigating the Worksheet Be aware that there is also a button on the Home tab that will “Merge and Center” the selected cells. This button will have the appearance of doing the same thing as “Center across selection,” but it doesn’t. In addition to centering the text, it also merges all of the selected cells into one big cell that spans multiple columns and/or rows. In the process of merging cells, all data that isn’t in the upper-left cell will be lost. Furthermore, merged cells make it difficult to select, sort, or filter a range. Generally speaking, it is better not to use the Merge and Center button. If needed, there is an Unmerge Cells command in the same button. Formatting Numbers Aside from changing the typeface and type size, when dealing with numbers we can also change their appearance by adding commas and dollar signs and by altering the number of decimal places displayed. Furthermore, we can make the numbers appear differently depending on whether they are positive or negative. For example, we might want negative numbers to be red in color and displayed in parentheses rather than using the negative sign. You can also experiment with designing custom number formats, but for now we will stick to the more common predefined formats. Microsoft is a large company, and its sales have ranged from nearly $70 billion to over $93 billion during 2011 to 2016. Numbers this large can be difficult to read unless they are written with commas separating every third digit. Let’s format our sales numbers so that they are easier to read. Select the range of sales numbers (A5:F5) and choose Format Cells from the right-click menu, and then click on the Number tab. You are presented with the Number Format dialog box that contains a list of formatting categories. For now, select Number from the Category list. This will give you the option to choose the number of decimal places displayed, choose whether or not to use a 1000 separator, and select the format of negative numbers. We want to display the sales numbers with commas separating every third digit and two decimal places, so change the decimal places to 2 and check the box to add a 1000 separator.4 Click on the OK button and notice that the numbers are now displayed in a more readable format. You could accomplish almost exactly the same format by clicking the Comma Style button on the Ribbon (there is a slight alignment difference between the two methods—you cannot center numbers formatted with the comma style). We have made several formatting changes to the Microsoft Sales worksheet and your’s should look like the one in Exhibit 1-2. All of this formatting may seem tedious at the moment, but it will become easy as you get more familiar with the choices. Furthermore, the payoff will be worth far more than a few seconds spent formatting the worksheet. 4. In the U.S. we use a comma as the 1000 separator. In many other countries a decimal point is used instead. Excel determines which to use based on settings in the Windows Control Panel.
CHAPTER 1: Introduction to Excel 2016 14 EXHIBIT 1-2 ORIGINAL WORKSHEET REFORMATTED Adding Borders and Shading Text formatting is not the only design element available in Excel. We can also liven up worksheets by placing borders around cells and shading them. In your worksheet, select A4:F4 (the years). Right-click the selection and choose Format Cells, and then select the Border tab from the dialog box. There are 13 different line styles that can be applied, and you can change the color of the lines. Click on the thick solid line (fifth down on the right side) and then click on both of the top and bottom lines in the sample view. Click the OK button to see the change. Next, with A4:F4 still selected, we will add shading. As before, choose Format Cells from the menu, but this time select the Fill tab. This tab allows you to set the background color and pattern of the cells. Click on a light gray color and then press the OK button. Now, to make the numbers more readable, make them bold. Your worksheet should now look like the one in Exhibit 1-3. EXHIBIT 1-3 THE WORKSHEET WITH BORDERS AND SHADING Entering Formulas So far, we haven’t done anything that couldn’t just as easily be done in a table in Microsoft Word. The real power of spreadsheets becomes obvious when formulas are used. Formulas will enable us to convert the data that we have entered into useful information. At the moment, our sample worksheet contains only sales data for Microsoft. Suppose, however, that we are interested in performing a simple analysis of the profitability of Microsoft over the 2011 to 2016 time period. In this case, we would also need to see the net
15 Entering Formulas income for each of the years under study. Let’s make some modifications to the worksheet to make it more useful. Add the data from Table 1-2 to the sample worksheet in cells A6:F6, immediately below the sales data, and apply the same formatting. Now, we have a couple of problems. The title of our worksheet, in cell A1, is no longer accurate. We are now putting together a profitability analysis, so we should change the title to reflect this change of focus. Select cell A1 (even though the title is centered across A1:F1, Excel still keeps the data in A1) by clicking on it. Notice that the text appears in the right hand side of the formula bar. To edit the title, click on the formula bar just to the right of the word “Sales.” Backspace over the word “Sales” and then type: Profitability Analysis, and press Enter to accept the change. Our only remaining problem is that the data in the worksheet are not clearly identified. Ideally, we would like to have the data labeled in the column just to the left of the first data point. But, there is no column to the left of the data! There are several ways to overcome this problem. The easiest is to simply insert a column to the left of column A. To accomplish this, select column A entirely by clicking on the column header where it has an “A.” Notice that the whole column is highlighted (we can do this with rows as well). Now, click the Insert button on the Home tab and choose Insert Sheet Columns. The new column is magically inserted, and all of our data have been moved one column to the right. In cell A5, type: Sales and in A6 type: Net Income. If you are following the examples exactly, the words “Net Income” probably do not fit exactly into A6. Instead, part of the text is cut off so as not to overflow onto the data in B6. We can easily remedy this by changing the width of column A. Click the Format button on the Home tab and choose Column Width. In the edit box type: 20 and press the Enter key. Column A should now be wide enough to hold the text that we have added and will add later. We can now proceed with our profitability analysis. Because of the change in sales over the years, it isn’t immediately clear from the data whether Microsoft’s profitability has TABLE 1-2 MICROSOFT NET INCOME 2011 TO 2016 Year Net Income 2016 16,798.00 2015 12,193.00 2014 22,074.00 2013 21,863.00 2012 16,978.00 2011 23,150.00
CHAPTER 1: Introduction to Excel 2016 16 improved or not, as net income has varied as well. In this type of situation, it is often preferable to look at net income as a percentage of sales (the net profit margin) instead of dollar net income. Thankfully, we don’t have to type in more data to do this. Instead, we can let Excel calculate these percentages for us. All we need to do is to enter the formulas. Formulas in Excel are based on cell addresses. To add two cells together, we simply tell Excel to take the contents of the first cell and add it to the contents of the second. The result of the formula will be placed in the cell in which the formula is entered. In our problem, we need to find net income as a percentage of sales. We will do this first for 2016. Before entering our first formula, we should insert a label identifying the data. In cell A7, type: Net Profit Margin. Change the active cell to B7 where we want to place the result of the calculation. The problem that we want to solve is to take the number in cell B6 (net income) and divide it by the number in B5 (sales). In Excel, division is represented by the forward slash (/), so in B7 type: =B6/B5. The equals sign must precede all formulas in Excel, otherwise it will treat the formula as text and will not calculate the result. Press the Enter key to calculate the result of the formula. You should get 0.1969 as the result. In this example, we typed the formula directly into the cell because the small size of our worksheet made it easy to know what cells we wanted to use in the formula. In many instances, this is not the case. In more complicated worksheets, it is usually easier to use pointer mode to enter formulas. In pointer mode, we use the mouse to point to the cells that we want to be included, and Excel inserts them into the formula. Move to C7 and we will enter the formula using pointer mode. First, type = to place Excel in edit mode. Now, instead of typing C6, click on C6 with the mouse. Notice that C6 appears in the formula bar to the right of the equals sign. Press the forward slash key to indicate division and then click on C5. In the formula bar you should see the formula “=C6/C5.” Press the Enter key to calculate the result of the formula. The result should be 0.1303. Let’s change the format of these cells so that they are easier to read. In this case, it would be nice to see them in percentage format with two decimal places. First, highlight cells B7:C7. Right-click and choose Format Cells, and click on the Number tab. From the Category list, click on Percentage and then set the Decimal places to 2. Press the Enter key or click the OK button. You could also apply this format by using the Percent Style button on the Ribbon. To get two decimal places, you would then need to click the Increase Decimal button in the same group. Figure 1-7 shows these and other formatting icons. FIGURE 1-7 NUMBER FORMATTING ICONS
17 Entering Formulas Copying and Moving Formulas We have now calculated the net profit margin for 2016 and 2015, but that still leaves four years for which we need to enter formulas. Repeatedly typing essentially the same formula can get tedious. Fortunately, we can simply copy the formula, and Excel will update the cell addresses to maintain the same relative relationships. For example, we know that for 2014 the formula should read “=D6/D5.” If we copy the formula from C7 to D7, Excel will change the formula from “=C6/C5” to “=D6/D5” automatically. This works because Excel treats all cell references as relative. When you typed the formula in cell B7 (=B6/B5), Excel read that as “take the contents of the cell that is one row above the current cell and divide that by the contents of the cell that is two rows above the current cell.” When copying formulas, Excel maintains the same relative cell relationships so that the formulas are updated. When we copy to the left or right, Excel updates the columns in the formulas. When we copy up or down, Excel changes the rows. To change this behavior, we use absolute references instead. An absolute reference always refers to the same cell, no matter where you copy it. To create an absolute reference, type dollar signs before the column letter and row number. For example, $B$6 will always refer to cell B6. The “$” tells Excel to not change the reference. We can also create mixed references. In a mixed reference only the column or row remains constant, not both. For example, $B6 is a mixed reference (column absolute, row relative). If the formula is copied down, it will change to $B7, but if it is copied across it will still be $B6. On the other hand, B$6 (column relative, row absolute) will still be B$6 if copied down, but will change to C$6 if copied across. We will make heavy use of absolute and mixed references in later chapters. Note that you can use the F4 key (a-T on a Mac) to cycle through every possible reference type. Simply enter a cell address and repeatedly press F4 until you get the type of reference you need (e.g., $B$6, B$6, $B6, or B6). Rather than retyping the formula for our other cells, let’s simply copy from C7. First, select C7 and then click the Copy button (or Ctrl-C) on the Ribbon. Now highlight cells D7:G7 and click the Paste button. At this point, your worksheet should closely resemble the one in Exhibit 1-4. EXHIBIT 1-4 A PROFITABILITY ANALYSIS FOR MICROSOFT
CHAPTER 1: Introduction to Excel 2016 18 We can see from Exhibit 1-4 that Microsoft’s net profit margin has varied somewhat over this period, but the margins are quite high compared to those of many other companies. In addition to copying formulas (which maintains the relative cell references), they can also be moved. Moving a formula to a different cell has no effect on the cell references. For example, we could move the formula in B7 (=B6/B5) to B8. To do this, select B7 and then click the Cut button. Next, select B8 and then click Paste. Notice that the result in B8 is exactly the same as B7 because the formula is unchanged. Now click the Undo button on the Quick Access toolbar to return the formula to B7. Formulas (or anything else) may also be moved with the mouse. Simply select the cells containing the data that you want to move, position the mouse pointer at the edge of the cell so that it changes to an arrow, and then click the left mouse button and drag the cell to its new location. Now move the formula back to B7. The worksheet should again resemble the one pictured in Exhibit 1-4. Mathematical Operators Aside from division, which we have already seen, there are four additional primary mathematical operations: addition, subtraction, multiplication, and exponentiation. Table 1-3 summarizes the five basic operations and the result that you should get from entering the example formula into cell B8. Parentheses and the Order of Operations Using the mathematical operators provided by Excel is straightforward in most instances. However, there are times when it gets a bit complicated. For example, let’s calculate the rates of growth of Microsoft’s sales and net income. To calculate the growth rates, we usually want the compound annual growth rate (CAGR, which is also known as the geometric mean growth rate) rather than the arithmetic average growth rate. TABLE 1-3 MATHEMATICAL OPERATIONS Operation Key Formula Result in B8 Addition + =B5+B6 99,712 Subtraction – =B5–B6 55,986 Multiplication * =B5*B7 21,863 Division / =B6/B7 77,849 Exponentiation ^ =15^2 225
19 Entering Formulas The equation for the CAGR is: (1-1) where N is the count of the numbers in the series, Sales0 is the first number in the series (2011 sales in our example), and SalesN is the last number in the series (2016 sales). Translating this equation into Excel is not as simple as it may at first appear. Doing this correctly requires knowledge of operator precedence. In other words, Excel doesn’t necessarily evaluate formulas from left to right. Instead, some operations are performed before others. Exponentiation is usually performed first. Multiplication and division are usually performed next, but they are considered equal in precedence, so any multiplication and division are evaluated from left to right. Finally, addition and subtraction are evaluated and they are also considered equal in precedence to each other. These are the same rules that you learned in your first algebra class. We can modify the order of operations by using parentheses. Operations enclosed in parentheses are always evaluated first. As a simple example, how would you evaluate the following expression? Is X equal to 2 or 3.33? Algebraically, X is equal to 3.33 because the division should be performed before the addition as Excel would do. If the answer we were seeking was 2, we could rewrite the expression using parentheses to clarify: The parentheses clearly indicate that the addition should be performed first, so the answer is 2. When in doubt, always use parentheses because using them unnecessarily will not cause any problems. To calculate the compound annual growth rate of sales, move to cell A8 and type: Sales Growth. Now, enter the following into B8 using equation (1-1): =(B5/G5)^(1/5)-1. Pressing the Enter key will reveal that the growth rate of sales for the five-year period was 4.05% per year (you may have to reformat the cell to display as a percentage with two decimal places). To determine the average growth rate of net income, type: Net Income Growth into A9, and then copy the formula from B8 to B9. You should find that the compound annual rate of growth of net income has been −6.21% per year and that the formula in B9 is: =(B6/ G6)^(1/5)-1. Notice how the row references were updated when you copied the formula down. CAGR SalesN Sales0 ---------------- - N 1 – ( ) 1 – SalesN Sales0 ---------------- - ⎝ ⎠ ⎛ ⎞ 1 N 1 – ( ) ----------------- 1 – = = X 2 4 3 ⁄ + = X 2 4 + ( ) 3 ⁄ =
CHAPTER 1: Introduction to Excel 2016 20 Using Excel’s Built-In Functions We could build some pretty impressive worksheets with the techniques that we have examined so far. But why should we have to build all of our formulas from scratch, especially when some of them can be quite complex and therefore error-prone? Excel comes with hundreds of built-in functions, and more than 50 of them are financial functions. These functions are ready to go; all they need is for you to supply cell references as inputs. We will be demonstrating the use of many of these functions throughout the book, but for now let’s redo our growth rate calculations using the built-in functions. Because we want to know the compound annual rate of growth, we can use Excel’s built-in GEOMEAN function.5 To use this function the syntax is: =GEOMEAN(NUMBER1, NUMBER2, …) The GEOMEAN function takes up to 255 cell addresses (or ranges) separated by commas. As is usual in Excel, we can also supply a range of cells rather than specifying the cells individually. Remember, we want to find the geometric mean rate of growth of sales (i.e., CAGR), not the geometric mean of the dollar amount of sales. Because the GEOMEAN function simply calculates the N th root of the product of the inputs, we need to redefine our inputs (we used the dollar amount of sales in our custom-built formula). Let’s add a row of percentage changes in sales to our worksheet (this is called a helper row). Move to A10 and enter the label: % Change in Sales, then select B10 and enter the formula: =B5/C5-1. The result in B10 should be −0.0883, indicating that sales decreased by 8.83% from 2015 to 2016. Now copy the formula from B10 to each cell in the C10:F10 range. Note that we don’t copy the formula into G10 because that would cause an error since H10 doesn’t contain any data (try it, and you will see #DIV/0! in G10, meaning that your formula tried to divide by zero). Now, to calculate the compound average annual rate of sales growth, we need to enter the GEOMEAN function into B11: =GEOMEAN(B10:F10). Because our data points are in one contiguous range, we chose to specify the range rather than each individual cell. Let’s also supply a label so that when we come back later we can recall what this cell represents. Move to A11 and enter: Sales Growth. Have you noticed any problems with the result of the GEOMEAN function? The result was a #NUM! error, rather than the 4.05% that we got when using our custom formula. Either our custom formula is incorrect or we have misused the GEOMEAN function. 5. We could calculate the arithmetic mean using the AVERAGE function, but this would ignore the compounding and overstate the true average growth rate. This function is defined as =AVERAGE(NUMBER1, NUMBER2, . . .).
21 Using Excel’s Built-In Functions Actually, this type of error is common and easily overlooked. What has happened is that when using the GEOMEAN function, we didn’t fully understand what goes on behind the scenes. GEOMEAN simply takes the N th root of the product of the numbers. That single negative number has caused the entire product to be negative, and you can’t calculate a root of a negative number. What we should have done is calculated the geometric mean of the price relative changes (i.e., one plus the percentage change). To correct the error, replace the formula in B10 with: =B5/C5 and copy it to the other cells. Now replace the formula in B11 with: =GEOMEAN(B10:F10)-1. The result is 4.05%, exactly the same as our previous result. To avoid errors like this one, you must absolutely understand what the built-in formula is doing. Never blindly accept results just because Excel has calculated them for you. There is an old saying in computer science: “garbage in, garbage out.” At this point, your worksheet should closely resemble the one pictured in Exhibit 1-5. EXHIBIT 1-5 ANALYSIS OF MICROSOFT’S GROWTH RATES Using the Insert Function Dialog Box With the hundreds of built-in functions available in Excel, it can be difficult to remember the name of the one that you want to use or the order of the arguments. To help you with this problem, Excel provides the Insert Function dialog box, a series of dialog boxes that guide you through the process of selecting and entering a built-in formula. Let’s use Insert Function to insert the GEOMEAN function into B11. First, select cell B11 and then clear the current formula by clicking the Clear button on the Home tab and then choosing Clear Contents (or, press the Delete key on the keyboard). Click the Insert Function button on the Formulas tab to launch the first Insert Function dialog box. In the first dialog box click on Statistical in the “Or select a category” list. The “Select a function” list will now contain all of the built-in statistical functions. Scroll down this list
CHAPTER 1: Introduction to Excel 2016 22 and click on GEOMEAN. Notice that there is a definition of the function at the bottom of the dialog box. Click OK to go to the next dialog box, which is pictured in Figure 1-8.6 In the Function Arguments dialog box, you will see prompts and definitions for each of the inputs to the selected function. Click and drag the mouse over the B10:F10 range. This range will appear in the “Number 1” edit box. Click on the OK button to have the function entered. The result is 104.05%, not the 4.05% that we expected. We need to subtract 1 from the result of the function, so click in the Formula bar and type -1 after the GEOMEAN function and then press Enter. The formula in B11 should be: =GEOMEAN(B10:F10)-1. Note that the 1 that we are subtracting represents 100% of the starting value. FIGURE 1-8 THE EXCEL 2016 FUNCTION ARGUMENTS DIALOG BOX Insert Function is an easy way to discover new functions and to use familiar ones. You can also find functions by using the function category buttons on the Formulas tab. Choosing a function from one of those lists will lead to the same Function Arguments dialog box. However you get there, using it will make Excel much easier for you to learn and use. If you know the name of the function that you need, you can skip the Insert Function dialog box. Just type = and then start typing the function name or any part of the name. Excel will automatically create a Formula AutoComplete menu listing functions that match what you have typed. Figure 1-9 shows the result from typing =ge in a cell. You could also type =mean or any other part of the function name to get a similar list. When you see the function name that you want, you can use the arrow keys to select it and then press the Tab key to begin entering the arguments. As you enter the function arguments, you will see a ToolTip that reminds you of their order. 6. Note that this dialog box frequently blocks your work. You can click and drag it out of the way.
23 Using Excel’s Built-In Functions FIGURE 1-9 FORMULA AUTOCOMPLETE “Dot Functions” in Excel 2016 In Excel 2010, Microsoft introduced a new naming convention for some functions. The new functions contain a “dot” in their names. For example, the STDEV.S function calculates a sample standard deviation and is identical to the STDEV function that has been in all earlier versions of Excel. In this case, the new naming convention is meant to more clearly convey the purpose of the function. In other cases, a dot function uses a new algorithm to calculate more precise results. In all cases, the older versions of the functions are available for compatibility with older versions of Excel. If a file is created using the dot functions in Excel 2016 and then opened in Excel 2007 or earlier, the result will be a #NAME! error. That happens because older versions aren’t aware of the existence of new functions. If a worksheet that you create may be used on older versions of Excel, you should run the Compatibility Checker before saving the file. This will warn of compatibility problems, including the use of the new dot functions. To use the Compatibility Checker, click the File tab and then Info. Click the Check for Issues button and then choose Check Compatibility. This will launch a dialog box like that shown in Figure 1-10, which is showing that there is a potential problem in Sheet1 of the workbook due to the use of functions that are incompatible with versions from Excel 97 to Excel 2007. Note that the dialog box shows the number of occurrences of each problem and the sheet on which they are located. If there is only one problem, then clicking the Find link will take you to that cell. If there is more than one problem, then the easiest way to find them is by clicking the Copy to New Sheet button. This will create a new worksheet with a report that identifies each cell with a problem, including a hyperlink that will take you straight to that cell.
CHAPTER 1: Introduction to Excel 2016 24 FIGURE 1-10 THE COMPATIBILITY CHECKER Using User-Defined Functions There are times when you need to calculate a complex formula and Excel doesn’t have a built-in function that will do the job. In this case, you can either type the formula into a cell (which can be very tedious) or use a user-defined function. A user-defined function is similar to a built-in function, except that it was created by somebody other than the Excel development team at Microsoft. User-defined functions can be purchased, downloaded from the Internet, or created on your own. Writing them in Excel’s macro language (Visual Basic for Applications, see Chapter 15) is beyond the scope of this chapter, but we have included several functions in the Famefncs.xlam file, which can be found on the official Web site for this book.7 Download the file and save it in an easy-to-remember location. These functions will be used occasionally throughout the book, especially in later chapters. Before using a user-defined function you must open Famefncs.xlam. This file is a special type of Excel file known as an add-in. An add-in can be opened just like any other Excel file, or it can be set to open automatically every time you start Excel. To make the functions in this file available at all times, click the File tab and then Options. Click Add-ins and then choose Excel Add-ins from the Manage list and click the Go button. This will open the Add- ins dialog box as pictured in Figure 1-11. If you have enabled the Developer tab, then you can also click the Excel Add-ins button located in the Add-ins group. 7. In Excel 2007 and later, file names with extensions that are .xlsm or .xlam contain macros. These files may require special security settings before Excel will allow the macros to run. Go to the File tab, then Options, and set up your Trusted Locations in the Trust Center. You may still receive warnings for some files, but if you are sure that they are safe then allow the macros to run.
25 Using Excel’s Built-In Functions FIGURE 1-11 THE ADD-INS DIALOG BOX Click the Browse button, navigate to where you saved the file, and choose Famefncs.xlam. It will be added to the Add-ins dialog box as shown above, and the functions in the file will now be available to use in all of your workbooks. If you can’t access the functions, be sure that you saved the file in one of your trusted locations as mentioned in footnote 7. Using a user-defined function is almost exactly the same as using a built-in function. The only difference is that the file containing the functions must be opened in order for the functions to be known to Excel. You can even use the Insert Function dialog box (select the User Defined function category, which is only available when user-defined functions are installed). As an example of the use of user-defined functions, we have created one to calculate the compound average annual rate of growth of sales from the dollar amounts instead of the price relatives that we used earlier. The function is defined as:8 FAME_CAGR(SALES) FAME_CAGR is the name of the function, and SALES is the required range of cells that contain the sales figures. The function automatically calculates the formula given in equation (1-1) on page 19. Now, in your original worksheet, select cell B12 and then bring up the Insert Function dialog box. Choose the User Defined category to display the list of functions that were supplied 8. This function was written specifically to calculate a compound average growth rate from dollar values. It does not duplicate Excel’s GEOMEAN function, so do not use it in place of that function.
CHAPTER 1: Introduction to Excel 2016 26 with this book. In the “Select a function” list, select FAME_CAGR and then click the OK button. In the edit box for Sales enter B5:G5, which is the range that contains Microsoft’s sales. Click on the OK button and see that the answer is exactly the same as before. The function in B12 is: =FAME_CAGR(B5:G5). We will use more of the user-defined functions from this add-in in later chapters. Creating Graphics In our simple profitability analysis, it is obvious that Microsoft’s profit margins have been somewhat volatile over the past six years. Many times, you will build much more complicated worksheets where the key trends are not so easy to spot, especially by others who haven’t spent as much time with the data. You may also find that you need to give a presentation, perhaps to a group of investors to convince them to invest in your firm. In cases such as these, tables full of numbers may actually obscure your point. People (and students too!) tend to get a glazed look in their eyes when examining tables of numbers. The solution to this problem is to present a chart of the numbers to illustrate your point. Fortunately, high-quality graphics are a snap with Excel. There are three ways that charts can be created in Excel: in separate chart sheets, embedded in the worksheet, or as in-cell charts known as Sparklines. We will cover each of these methods in turn. Creating Charts in a Chart Sheet When you want to focus only on a chart, then it is best to create it in its own chart sheet. We can create a chart separate from the worksheet by selecting the data and inserting a new chart sheet. Let’s try creating a graph of Sales versus Net Income for Microsoft. First select the data in the A4:G6 range and then right-click the tab for the current worksheet. From the menu that appears, choose Insert. You will now be presented with a list of different file types from which to select. Because we want to create a chart, select Chart from the list and press Enter or click OK. A chart sheet will open with your data displayed automatically in a Column chart. It will have a default chart title, no axis titles, and will require a few other enhancements. Note that you now have two additional tabs in the Ribbon (Design and Format) that are specific to working with charts. These are known as contextual tabs because they only appear when editing a chart. If you want another type of chart, click the Change Chart Type button on the Design tab.
27 Creating Graphics Let’s begin to fix our chart by adding a title. Select the chart and then click the Chart Elements button that appears near the upper-right corner of the chart (Microsoft calls these buttons the Proximal UI). Click the Chart Title item and choose the Centered Overlay option. In the text box that appears, type: Microsoft Sales vs. Net Income and then click outside the box to lock in the title. EXHIBIT 1-6 A STAND-ALONE CHART You will follow a similar procedure for the axis titles. Click the Axis Titles item in the Chart Elements button to insert both the x and y axis titles. For the x-axis double click the “Axis Text” label and then type: Years, and for the y-axis type: Millions of Dollars for the title. Your chart should now resemble the one in Exhibit 1-6. We will see how to fix the reversed x-axis after the next section. Creating Embedded Charts You may want to create a chart that will be saved and displayed within the worksheet itself. Such a chart is referred to as an “embedded chart” because it appears within the worksheet. Unlike a separate chart sheet, embedded charts can be displayed and printed on the same page as the worksheet data. If necessary, embedded charts can be printed separately from the worksheet. To create an embedded chart, first switch to your worksheet. Now select A4:G6 as before and then click the Insert tab. Click the Column button in the Charts group and then choose the first type listed under 2-D Column. The chart will appear in the middle of your worksheet. To resize the chart, click and drag any of the selection boxes on its perimeter. To move the chart, click on a blank area inside the chart and drag it to wherever you want it to be. If you hold down the Alt button (a on Mac) while dragging or resizing the chart, it will snap to the gridlines. Your worksheet should now resemble the one in Exhibit 1-7, except for some minor formatting changes. Enter the chart and axis titles exactly as before.
CHAPTER 1: Introduction to Excel 2016 28 EXHIBIT 1-7 A WORKSHEET WITH AN EMBEDDED CHART Note that you can move your embedded chart into a separate chart sheet and vice versa. Just right-click in the chart and choose Move Chart from the shortcut menu. There is also a Move Chart button on the Design tab. You can even move your chart to a different worksheet in this way. Formatting Charts We have now created a basic chart of Sales versus Net Income, but it probably isn’t quite what you expected. First, we normally expect that the most recent data in a chart is on the right side and the oldest on the left. Because we have created our worksheet data in the opposite direction (a common convention), our chart is backward and a quick glance might suggest that sales and profits have been declining. In Excel, every element of a chart is treated as a separate “object.” This means that each element can be selected and edited separately from the other elements. In addition, these chart objects are somewhat intelligent. They “know” what actions can be performed on them and will present a menu of these actions if you right-click on them. The major objects in any chart include each data series, the plot area, the gridlines, the axes, each axis title, the chart title, and any text boxes entered into the chart. To select an object, all that you need to do is to click on it. Once the object is selected, it will have small squares (selection handles)
29 Creating Graphics surrounding it. In some cases this will result in the selection of multiple items (e.g., the entire data series, or the entire legend), but you can often narrow the selection with a second click (not a double-click). With this knowledge, let’s edit our chart. First, we want to turn the x-axis around so that the data are presented in the order that we normally expect. Right-click on the x-axis (or the axis labels) to show the shortcut menu. Once the menu appears, choose Format Axis. This will launch the Format Axis panel on the right side of the window. Under Axis Options, choose the Date Axis type so that Excel understands that our year numbers are dates. It will flip the axis so that it reads left to right as we would expect. If we had entered full dates in the heading (e.g., 6/30/2016), then Excel would have recognized the dates and created a date axis that we wouldn’t need to flip. We could also flip the axis by selecting “Categories in reverse order” from the same panel. This will reverse the x-axis, but also move the y-axis to the right side of the chart. If that isn’t what you want, click on “At maximum category” in the same dialog box to move the y-axis back to the left side. This method is best used when your x-axis labels are text. If they are dates, then the previous method is better. Now suppose that we wanted to change the chart title so that it shows the years that are covered by the data. Simply click on the chart title to select it, then click at the end of the title. You could begin typing immediately, but we want to put the new text on a second line. Press Enter to begin a new line and then type: 2011 to 2016 and press the Esc key or click anywhere else on the chart. You may need to resize the font to make the title fit. Next, let’s move the legend to the bottom of the chart to see if it looks better there. Right- click on the legend and choose Format Legend from the shortcut menu. Select Bottom from the choices presented. Close the Format Legend panel and return to the chart. If things don’t look quite right, click in the plot area to select it and drag the selection handles until the plot area is the proper size. Your worksheet should now resemble the one in Exhibit 1-8. Changing the Chart Type Excel offers many different types of charts: everything from the column chart that we have created to Box and Whisker charts and Waterfall charts. Some of these chart types are very sophisticated. Despite potential complexities, changing the chart type is very simple. Let’s assume that we would prefer to see the data in our chart presented as two lines, rather than as columns. To make this change, right-click anywhere inside the chart and choose Change Chart Type from the menu (or the button on the Design tab). Select a type of Line chart and click OK. The chart is now displayed as a line chart. You can even change the type of an individual data series. For example, you might want to see Sales as a Column chart and Net Income as a Line on the same chart. Give it a try. Right-click on the Sales data series, choose “Change Series Chart Type…,” and change the chart type to Clustered Column.
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thoughtless act you young people have done. There is no hope of turning Mr. Manners, you say. Yet you are a lady, well mannered, well spoken, well educated; and he sprang from nothing. It is well known. But it is idle to talk in this fashion. There is a stubbornness on the part of the ignorant which is worse than the pride of those who can boast of high descent. The self-made man is often the most difficult animal to deal with. Your husband could not have contemplated the cost of what he was about to do." "He thought only of one thing, uncle--that he loved me." "And that is to serve as a set-off against all the ills of life. I hope it may prove so. The commencement does not hold out any great promise, that's plain. And now, Nansie, tell me the rest in your own way. I have got the nut of the story, and a precious hard one it is to crack." "When my dear father died," said Nansie, "Kingsley was in London. Mr. Manners had just returned from Russia, and it was the first opportunity Kingsley had of making him acquainted with our marriage. I think that Kingsley, out of consideration for me, has not told me everything that passed between him and his father, but I know that Mr. Manners extracted a promise from him to remain at home for a week before he decided." "Decided upon what?" asked Mr. Loveday, abruptly. "I do not know, uncle; Kingsley has been so worried and troubled that it would have been unkind for me to press him upon points which really matter very little. For, after all, Kingsley came back to me when I called him, and is true and faithful." "His father perhaps pressed him to desert you and break your heart. Rich as the self-made man is, he could not divorce you. And your husband consented to remain a week in his father's house to consider it! That looks ugly."
"Kingsley did nothing wrong. He hoped by remaining near his father that a favorable moment might come when he could successfully appeal to him to deal more tenderly towards us. There was also the chance of his mother's mediation." "Ah, there is a mother. I was going to ask about her." "Mr. Manners is master of everything and everybody. His lightest word is law. Before the week was ended Kingsley received my letter with news of my dear father's death. Where was Kingsley's place then, uncle?" "By your side." "He came at once without a single hour's delay. He asked his father to release him from his promise, and as Mr. Manners would not do so, he broke it--out of love for me. This, I think, embittered Mr. Manners more strongly against us, and he turned Kingsley from the house. I hope you are beginning to do Kingsley justice, uncle." "He seems to have acted well. But go on." "After my father was buried, Kingsley and I were naturally very anxious as to how we should live. Kingsley had a little property, but he owed money to tradesmen, which had to be paid. The settlement of these accounts swallowed up nearly every sovereign he possessed, and we had a hard fight before us, harder, indeed, than we imagined. I must tell you that Kingsley wrote to his parents without success. His father returned his letter without one word of acknowledgment. If I had thought I could do any good I would have gone to his mother, but I felt that it would only make matters worse, if they could be worse. What could I have expected from her but reproaches for separating her from her son? For I am the cause of that. If Kingsley had never seen me he would have been at peace with his parents, carrying out his father's desire that he should become a member of Parliament, and take a part in public affairs. Kingsley is fitted for it, indeed he is. He talks most beautifully. And I
have spoiled it all, and have ruined a great career. I would not dare to say so to Kingsley; he would never forgive me for it. He tried hard to get some sort of work to do; he went out day after day, and used to return home so sad and wearied that it almost broke my heart to see him." "With but a little store of money," said Mr. Loveday, "such a state of affairs must soon come to an end." "We held out as long as we could; longer, indeed, than I thought possible. We parted with many little treasures--" "And all this time you never wrote to me!" exclaimed Mr. Loveday. "Remember, uncle, that I had written to you and that you had not sent a line of congratulation upon our marriage." "A nice thing to congratulate you upon! But I was to blame, I admit it." "It was a delicate matter to Kingsley. 'Your uncle doesn't care to know me,' he said; and so it seemed. At length, uncle, we came to a great block, and we truly despaired. But there was a break in the clouds, uncle." "Good." "I am speaking of yesterday. A letter arrived for Kingsley from a friend to whom he had written, saying that a gentleman who intended to remain abroad for three or four months required a kind of secretary and companion, and that Kingsley could secure the situation if he cared for it. The gentleman was in Paris, and the letter contained a pass to Paris, dated yesterday. We had come to our last shilling, uncle, and this separation--I hope and trust not for long-- was forced upon us. Kingsley managed to raise a little money, a very little, uncle, just enough to defray his expenses to Paris and to leave me a few shillings. So last evening, when we parted, it was agreed
that I should come to London to-day, and appeal to you to give me shelter till Kingsley's return. That is all, uncle. Will you?" "Yes, Nansie," said Mr. Loveday, "I will keep the promise I made to my dead brother." Nansie took his hand and kissed it, and then burst into tears.
CHAPTER XX. From that day a new life commenced for Mr. Loveday. It was not that there was any great improvement in the ordinary domestic arrangements of his modest establishment, because the reign of Timothy had introduced beneficial changes in this respect before Nansie was made queen. It was more in its spiritual than its material aspect that the new life was made manifest. To have a lady moving quietly about the house, to be greeted by a smile and a kind glance whenever he turned towards her, to hear her gentle voice addressing him without invitation on his part--all this was not only new, but wonderful and delightful. Mr. Loveday very soon discovered that Nansie was indeed a lady, and far above the worldly station to which her circumstances relegated her; it was an agreeable discovery, and he appreciated it keenly. He found himself listening with pleasure to her soft footfall on the stairs or in the rooms above, and he would even grow nervous if any length of time elapsed without evidence of her presence in the house. Perhaps Nansie's crowning virtue was her unobtrusiveness. Everything she did was done quietly, without the least fuss or noise; no slamming of doors to jar the nerves, nothing to disturb or worry. "Where did you learn it all, Nansie?" asked Mr. Loveday. "It is what all women do," she replied. He did not dispute with her, although his experience was not favorable to her view. Inwardly he said: "What all women could not do, if they tried ever so hard, but then Nansie had perfection for a mother." His thoughts travelled frequently now to the early days when he loved the woman who was not to become his wife, and it
may be that he accepted Nansie's companionship and presence as in some sense a recompense for his youthful disappointment, a meting out of poetical justice, as it were. Of all the hours of day and night the evening hours were the most delightful, not only to him, but to Timothy, between whom and Nansie there swiftly grew a bond of sympathy and friendship. Before Nansie's appearance Mr. Loveday's house was a comfortable one to live and work in; but from the day she first set foot in it, it became a home. Neither Timothy nor Mr. Loveday could have given an intelligible explanation of the nature of the change; but they accepted it in wonder and gratitude. Everything was the same and yet not the same. There was no addition to the furniture; but it appeared to be altogether different furniture from that to which they had been accustomed. It was brighter, cleaner, and in its new and improved arrangement acquired a new value. There were now white curtains to the windows, and the windows themselves were not coated with dust. The fireplaces were always trim and well brushed up, the fires bright and twinkling, the candlesticks and all the metalwork smartly polished, the table-linen white and clean, clothes with never a button missing, socks and stockings with never a hole in them. Nansie could have accomplished all these things unaided; but Timothy was so anxious to be employed that she would not pain him by refusing his assistance. She had another reason--a reason which she did not disclose, and which Mr. Loveday and Timothy were too inexperienced to suspect--for accepting the lad's willing service. She knew that a time was approaching when it would be invaluable, and when she would be unable to devote herself to these domestic duties. The evenings were the most delightful, as has been stated. Then, the day's labor over and everything being in order, they would sit together in the little room at the back of the shop and chat, or read, or pursue some study or innocent amusement. Mr. Loveday fished out an old draught-board, with draughts and a set of chessmen, and was surprised to find that Nansie was by no means an indifferent
draught-player, and that she knew the moves of chess, in which her skill was not so great. At one time of his life he had been fond of backgammon, and he taught Nansie the game, Timothy looking on and learning more quickly than the fair pupil whose presence brightened the home. Timothy also made himself proficient in the intricacies of chess, and within a few months justified himself master, and gave odds. An evening seldom passed without a reading from a favorite author, Nansie's sweet, sympathetic voice imparting a charm to passages from which something valuable might have been missed had they not been read aloud. From this brief description it will be gathered that Nansie's influence was all for good. Thus time sped on, and Kingsley was still absent. He wrote to Nansie regularly, and she as regularly replied to his letters, never missing a post. She wrote in her bedroom always, and generally at night when the others were abed. In silence and solitude she was better able to open her heart to her husband. To say that she was entirely happy apart from Kingsley would not be true, but she had a spirit of rare hope and contentment, and her gratitude for the shelter and comfort of her new home was a counterbalance to the unhappiness she would otherwise have experienced. "A letter for you, Nansie," Mr. Loveday would say. Taking it eagerly, she would speed to her room and read it again and again, drawing hopeful auguries from words in which none really lay. For although Kingsley's letters were cheerfully and lovingly written, there was nothing substantial in them in their prospects of the future. They were all of the present, of his doings, of his adventures, of his travels, of what he had seen and done, forming a kind of diary faithfully kept, but with a strange blindness in respect of years to come. At one time he was in France, at another in Italy, at another in Germany, at another in Russia. "Mr. Seymour," he wrote, "has an insatiable thirst for travel, and will start off at an hour's notice from one country to another, moved
seemingly by sudden impulses in which there appears to be an utter lack of system. It is inconvenient, but of course I am bound to accompany him; and there is, after all, in these unexpected transitions a charm to me, who could never be accused of being methodical. The serious drawback is that I am parted from you. What pleasure it would give me to have you by my side! And you would be no less happy than I." Then would follow a description of the places they passed through and stopped at, of people they met, and of small adventures which afforded him entertainment, ending always with protestations of love, the sincerity of which could not be doubted. But Mr. Loveday was never anything than grave when Nansie read aloud to him extracts from her husband's letters. "Who is Mr. Seymour?" he asked. "A gentleman," replied Nansie. "What is he, I mean?" was Mr. Loveday's next question. Nansie shook her head. "I have no idea." "Has your husband any idea?" "I suppose he has." "You only suppose, Nansie." "Yes, uncle, I can do nothing else, because Kingsley has never said anything about it." "Surely, if he really knew," persisted Mr. Loveday, "he would not be so silent on the subject." "Perhaps you are right, uncle; perhaps Kingsley does not really know."
"If Mr. Seymour were travelling with any specific object in view, there would be no need for secrecy. Say that he were an enthusiast, that he had a craze, no matter in what shape, he would not disguise it." "Certainly not, uncle. Mr. Seymour must be travelling simply for pleasure." "Which is not a simple matter, Nansie," observed Mr. Loveday, "when a man runs after it. I can imagine few things more laborious and less likely of a satisfactory result. Now, Nansie, what are your husband's duties in his employment?" "He does not say, uncle." "Do you think he has any?" "I suppose so." "More supposings, Nansie." "What else can I say, uncle?" "Nothing, my dear, and I am to blame for worrying you. We will drop the subject." "No," said Nansie, earnestly, "please do not drop it." "Why should we continue it, Nansie?" "Because," replied Nansie, with a slight flush on her face, "I am afraid you are doing Kingsley an injustice." "I should be sorry to do that," said Mr. Loveday, very seriously. "I know you would," responded Nansie, in a tone of affection, "and that is why I want to set you right. You think that Kingsley is concealing something from me. He is not; he loves me too well. You
think that I need some one to defend me. I do not. It is only when a person is wronged or oppressed that he needs a defender. No one has ever wronged or oppressed me. On the contrary, every one in the world is kind to me--that is," she added hastily in correction, for she thought of her husband's parents, "every one who knows me. Now you, uncle," she said, wistfully and tenderly, "before I came here I dare say you had no great regard for me." "I had not, Nansie." "It was only because you made a promise to my dear father out of your kind heart, and because you are an honorable man who would not break his word, that you welcomed me at first. And perhaps, too," her voice faltered a little here, "because I resemble my mother, for whom you had an affection." She paused, uncertain whether she had gone too far; but he inclined his head kindly towards her, and said, "You are speaking justly, Nansie. Go on, if you have anything more to say." "Yes, uncle, I have something more to say. That was your feeling for me at first; but since then--I say it humbly and gratefully--I have been happy in the belief that I have learned something for myself." "You have," said Mr. Loveday. "I love you, Nansie." "It is so sweet to me to know it, dear uncle," said Nansie, with tears in her eyes, "that I am enabled to bear Kingsley's absence--I hope and pray it will not be for long--with courage and resignation. And because of that, because of the love which unites us, you must think well of Kingsley--you must think always well of him. Uncle, he is the soul of honor, truth, and unselfishness. When he told me he loved me, and asked me to marry him, he did not weigh the consequences, as nearly every other man in his position would have done."
"He was rash," observed Mr. Loveday. "Would you censure him for it? Did he not behave as an honorable, noble-hearted man?" "Undoubtedly. He has a worthy champion in his wife." "Ah, but it would distress me immeasurably to feel that you believe he needs a champion, or I a defender. You do not know him, uncle; when you do you will not fail to love him. I do not say that he is worldly wise, or quite fitted yet to battle with the future, but that it is his earnest desire to fit himself for what I feel will be a great struggle, and to perform his duty in a manly way. No man can do more, and, whatever may be our future, I shall love and honor him to the last." "My dear Nansie," said Mr. Loveday, "say that you are partly right in your views of my feelings for your husband; be content now to know that you have won me over to his side." "I am indeed content to know it, uncle." "But should that deprive a man of his right to judge actions and circumstances? We sometimes condemn those whom we love best." "It should not deprive him of the right," replied Nansie, adding, with what her husband would have told her was feminine logic, "but you must not condemn Kingsley." "I will not. I will apply ordinary tests. When he took the situation with Mr. Seymour, did he know anything of his employer?" "Nothing; but we were in great stress, and Kingsley was compelled to take advantage of his opportunity." "Admitting that. But a man must face his responsibilities, and discharge them to the best of his ability."
"Yes, uncle, to the best of his ability." "My dear, had you been a man, you would have made a very good special pleader. To continue. What is your husband's salary?" A look of distress was in Nansie's eyes, and she did not reply. "I infer," said Mr. Loveday, replying for her, "that you do not know." "I fear I do," said Nansie, in a low tone. "Tell me, then." "I fear, uncle, that there is no salary attached to the situation." "But there should be?" "Yes, there should be." "Mr. Seymour, wishing to engage a gentleman as part companion and part secretary, must have been prepared to enter into some kind of monetary arrangement. Whose fault is it that the arrangement was not made? I will reply for you again. It must have been Kingsley's fault. Not very practical, Nansie." "I am afraid, uncle," said Nansie, speaking slowly, and as though she were about to commit an act of treason, "that Kingsley is not very practical." "But how is a man to get along in the world," said Mr. Loveday, with a curious mixture of decision and helplessness, "who thus neglects his opportunities? I am speaking entirely in a spirit of kindness, Nansie." "Yes, uncle, there's no occasion for you to remind me of that. But how can you blame Kingsley? He meets Mr. Seymour as one gentleman meets another. He is too delicate-minded to broach the subject of salary, and perhaps Mr. Seymour forgets it."
"No, child, Mr. Seymour does not forget it. He takes advantage of your husband, and the consequence is that he is using a man's services without paying for them. And the consequence, further, is that valuable time is being wasted and misspent. Two or three weeks ago you commenced to read to me something in one of your husband's letters, and you suddenly stopped and did not continue. It was about money. Am I wrong in supposing that what you were about to read was in reply to something you had written in a letter to your husband?" "You are not wrong, uncle." "Plainly, you asked him whether he could not send you a little money?" "Yes." "And that was his reply. I can judge what it was." "Uncle, he had none to send. He is entirely dependent upon Mr. Seymour." "Who is not liberal?" "Yes, uncle." "Who is not only not liberal, but unjust?" "But that is not Kingsley's fault," pleaded Nansie. "I am not so sure. Child, child, you and your husband are like the children in the wood, and you know their fate." "I should be content," said Nansie, mournfully, for a moment overwhelmed--only for a moment; her mood changed instantly, and with indescribable tenderness she said: "But I want to live--to live!"
There was a new note in her voice, and in her eyes a dreamy look of exquisite happiness which caused Mr. Loveday to wonder as he gazed upon her. Never had she been so beautiful as she was at that moment. In the expression on her face was something sacred and holy, and Mr. Loveday saw that she was deeply stirred by emotions beyond his ken. "Nansie!" "Yes, uncle," said Nansie, awaking from her dream. "You heard what I said?" "Yes, uncle--but you must not blame Kingsley; you must not blame my dear husband." "I will not--strongly. Only I should like you to consider what would have been your position if you had not found me in the London wilderness, or, having found me, if I had proved to be hard-hearted instead of a loving uncle." "What is the use of my considering it," she asked, in a tone of tender playfulness, "when I did find you, and when you proved yourself to be the best of men? It would be waste of time, would it not? Confess now." "Upon my word," said Mr. Loveday, "I should almost be justified in being cross with you if I did not suspect that any unreasonableness in our conversation must spring from me, in consequence of my not being familiar with the ways of women. But you shall not drive me completely from my point. For your sake, Nansie, I regret that I am poor. I never wished so much to be rich as I do at the present time. You are attending to me, Nansie?" "Yes, uncle."
"Has your husband sent you any money at all since he has been away?" "None, uncle. He has not had it to send." "Yet you are in need of a little?" She looked at him, and her lips trembled slightly; and then again, a moment afterwards, the same expression of dreamy happiness stole into her face which he had observed before. "Yes, uncle, a little, a very little. But I shall manage; I have already earned a trifle." "In what way?" inquired Mr. Loveday, much mystified. "I got some needlework to do, and am being paid for it." "But in the name of all that's reasonable," exclaimed Mr. Loveday, "where and when do you do your work?" "In my room of a night, uncle," replied Nansie, blushing. "When we are all asleep," said Mr. Loveday, with the nearest approach to a grumble she had heard from his lips. "This must not continue, Nansie. You will do your work here of an evening and during the day, if it is necessary." "Yes, uncle, I will obey you. But--" her form swayed slightly, and she was compelled to make an effort to keep herself from swooning- -"you must not be angry with me. I am not very strong just now." She brought her work down, and went on with it before his eyes, and there was perfect harmony between them. But still, in the stillness of her room, when her uncle supposed her to be abed, her fingers were busy in their labor of tenderest love.
Financial Analysis With Microsoft Excel 8th Edition Timothy R Mayes
CHAPTER XXI. The event which occurred in Mr. Loveday's house in Church Alley, and which caused him perhaps the greatest excitement in his life, will be explained by the following letter which Nansie wrote to her husband two months after the conversation between her and her uncle narrated in the last chapter: "My Own Dear Kingsley,-- At length I am strong enough to write to you, and it is a great joy to me to sit down once more to speak to the beloved wanderer of whom I think night and day. I am sure that you must be with me, in spirit, even in my dreamless sleep. You will not be sorry to know that you are not the only one now the thought of whom makes my heart a garden of flowers. I have a sweet treasure--surely the sweetest that ever blessed a happy woman--lying at my feet, and you will not begrudge me. Oh, my dear Kingsley, if you were with me at this moment, and we were looking down together on the lovely, innocent face of our darling, you would think as I do, that heaven itself was shining in the little room in which I am writing! Everything is so strangely beautiful that I can scarcely believe I am living the same life I lived till I became a happy, happy mother. It is not the same--it is sweeter, purer, more precious; I seem to hear angelic music even in the silence which surrounds me. I know what produces it. I put my face close to my darling's mouth, and I can just hear her soft breathing. "You will forgive me, will you not, for not having written to you for so long a time? I could not help it, you see. I know from your last letter that you received the one my uncle wrote to you, and that you would have flown to my side if you had had the means. It seems so cruel that you should be in such straits for money. Why do you not ask Mr. Seymour straightforwardly to pay you what he must owe you? It must be a good sum by this time. But perhaps it is wrong of me to say to you, why do you not do this or that?--for surely you must know what is best to be done, and the right time to do it. It is easy to judge for others, is it not, my dearest? I have the fullest faith and confidence in you; and, my dear, you must not worry about me. My uncle is the dearest friend I could have met with. He is
kindness itself, and I feel that he loves me as if I were his daughter. And I have money--not much, Kingsley, dear, but enough--to go on with. Before baby came I earned some, and presently, when she can crawl, and walk, and speak--oh, Kingsley, the wonder of it!--I shall earn more. Uncle is so good to me that I need very little; but still some things are necessary which uncle does not understand about, and he has not more than he knows what to do with. Then, of course, I am an expense to him; but he never makes the least mention of that--he is too considerate, and I know he is glad to have me with him--and to have baby, too, although I fancy he does not quite know yet what to make of the darling. Indeed, I half think he is frightened of her. I see him sometimes looking at her when she is asleep with such a funny look in his eyes that I can hardly keep from laughing. The idea of a great big man being frightened of a little baby! But, Kingsley, dear (I would not confess it to anybody but you), I, too, am frightened of baby a little sometimes, when she lies in my lap, staring at me solemnly with her beautiful eyes--the color of yours, dearest--wide, wide open, without even so much as a blink in them. She seems to be reading me through and through. 'What are you thinking of, darling?' I whisper to her; and though of course she cannot answer me, I am sure that she understands, and that I should be very much astonished if I knew what was passing through her mind. She is going to be a very wise little body--I can see that--and very sweet and beautiful, and a great blessing to us. But she is that already, the greatest, the most precious that has ever fallen to my lot. You see, my dear husband, I look upon baby and you as almost one person; I cannot think of one without the other, it is impossible to separate you; so that when I say that baby is the greatest blessing that was ever given to me, I mean you as well as our darling.... "I have been obliged to stop; baby woke up, and we had a happy hour together. Now she is asleep again. She is so good, not at all fretful, as some babies are, and when she cries (which is really not often) it is a good healthy cry, which makes uncle say that her lungs are in fine condition.... "I have been reading over what I have written, and I stopped at the part where I speak of baby presently being able to walk and talk. Long before that, my dear Kingsley, I hope that you will be with us, and that we may be all living together. Do not think I am desirous of urging you to any other course than that which you consider right, but the happiness of our being together again would be so great! Is there any chance of Mr. Seymour coming to England and settling down here, and keeping you as his secretary at a fair salary? Then we could have a little home of our own, and you could go to Mr. Seymour in the morning and come home in the evening, and we should have one day in the week to ourselves. It is not a very great deal to ask for, but if some kind fairy would only grant it I should be supremely happy. Surely, surely, the future must have something good in store for us!
"I have told you in my letters all about Timothy Chance, and how good and helpful he has been. Well, my dear Kingsley, until baby came I looked upon Timothy as my knight, my own special cavalier whom I could depend upon for service at any hour I chose to call upon him; but I think now that he has divided his allegiance, at least half of it going to baby. Timothy is an extraordinary lad, and uncle has a great opinion of him. Putting his duties in uncle's business out of the question, and putting baby and me out of the question, Timothy seems to have only one idea--eggs and fowls. He is now the proud owner of four fine hens, and his spare minutes (not too many) are devoted to them. He reads up every book he can lay hands upon that treats of fowls, and is really very clever in his proceedings. He made me laugh by saying: 'If fowls won't lay they must be made to lay;' and he studies up food to coax them. It is very amusing; but Timothy is so earnest that you cannot help respecting him, and respecting him more because he is successful. He shows me his figures, and is really making a profit every month. He is now drawing out plans for constructing a movable fowl-house, in compartments, each compartment accommodating eight fowls, and capable of being taken down and put up again in a wonderfully short time. Uncle says the plans are as nearly perfect as possible, and that he should not wonder if Timothy made a fortune one of these fine days. Timothy has insisted upon my accepting two new-laid eggs a week. Uncle and he had some words about them at first, uncle wanting to pay for them and Timothy refusing to accept any money; but the good lad was so hurt and took it so much to heart that I persuaded uncle to let him have his way. "Why do I write all this to you, dear Kingsley? To show you that I am in the midst of kindness, and that although you have not as yet been very fortunate, there is much to be grateful for. Remember our conversation, my darling, and never, never lose heart. Courage! courage! as you have said many times; and it will help you to feel assured that there are loving hearts beating here for you, and friends holding out willing hands. Why, if a poor, imperfectly educated lad like Timothy looks forward to making a fortune out of such simple things as eggs, what may you not do, with your advantages and education? All will be well, and there is a happy future before us. "I am tired, and have a dozen things to do, or I would keep on talking to you for hours. But I must really finish now. Baby sends you her dearest, dearest love. Indeed she does. I asked her, and upon my word, Kingsley, dear, she crowed and laughed. She is the most wonderful thing in the world, there is no doubt of that. I kiss her a hundred times for her dear papa, and I blow her kisses to you, and kiss them into the words I am writing. Our hearts are with you; our dearest love is yours. Oh, my darling! to close this letter is like bidding you good-bye again. Take all our love, which is forever blossoming for you. I close my eyes, and think that
you are by my side; and I press you to my heart, which beats only for you and our darling child. What name shall I give her? "Good-bye, and God bless and guard you, my own dear love. "Your faithful, loving wife, Nansie."
CHAPTER XXII. History repeats itself. The fortunes of Timothy Chance were turned by a fire--whether for good or evil, so far as regards himself, had yet to be proved. He was to go through another experience of a similar kind, in which, as on the first occasion, those who befriended him were the greatest sufferers. Nansie had to wait for more than a month before she received an answer to her last letter from Kingsley. He and his employer, it appears, had been continually on the move, and the letter which Mr. Loveday had written to him could not have reached him. It was by a lucky chance that Nansie's letter with the news that he was a father fell into his hands after a long delay; and she gathered from his reply that some of his own communications to her must have miscarried. This last letter which she received was far from encouraging. It was in parts wild and incoherent; the cheerfulness which had pervaded his previous missives was missing; the writer seemed to be losing hope. "I am learning some hard lessons," Kingsley wrote, "and am beginning to doubt whether there is any truth or justice left in the world." This was distressingly vague, for no explanation of Kingsley's moody reflection was forthcoming. It did not even appear that he was drawing consolation, as he had often done during his absence, from the thought that Nansie was ever ready with open arms to comfort him.
"Instead of advancing myself," Kingsley wrote, "by the step I have taken, I have thrown myself back. It is a miserable confession to make, but there it is, and wherever I go I see, not the shadow, but the actual presentments of misery and injustice. Can any man inform me under what conditions of life happiness is to be found?" As was to be expected, the letter was not wanting in affectionate endearments and in expressions of joy at the birth of their child. "He is miserable," thought Nansie, because we are not together. "When we are once more united, will it be wise to consent to another separation?" She felt that he had need for the companionship of a stronger nature than his own, and she prayed for the time to come quickly when she would be with him to keep his courage from fainting within him. The very next day she was comforted by the receipt of another letter from Kingsley, in which was displayed his more cheerful, and perhaps more careless characteristics. "What could I have been thinking of," he said, "when I wrote you such a strange, stupid letter as I did yesterday? I must have lost my wits, and I hasten to atone for it by sending you another in a better and more natural vein. Burn the first, my dear Nansie, so that it may not be in existence to reproach me. A nice piece of inconsistency you have married, my dear! I do not remember ever to have been so cast down as I have been for two or three days past; but I should keep that to myself, and not burden you with a share of my despondency. It has been my habit always to look with a light spirit upon circumstances, whether they were in my favor or against me; and if I am to replace that by becoming savage and morose, I shall be laying up for myself a fine stock of unhappiness. So I determine, for your sake and mine, and for the sake of your dear little bairn, to whistle dull care away, and to make the best of things instead of the worst. Here am I, then, my usual self again, loving you with all my heart and soul, longing to be with you, longing to hold our dear bairn in my arms, longing to work to some good end. The question
is, how to set about it, and what kind of end I am to work for. There is the difficulty--to fall into one's groove, as we have decided when we have talked about things, and then to go sailing smoothly along. Yes, that is it, and we must set ourselves to work to find out the way. I may confess to you, my dear wife, that up to this point success has not crowned my efforts; in point of fact, to put it plainly, I am thus far a failure. However, I cannot see how I am to blame. If I had had the gift of prophecy I should never have joined Mr. Seymour, but how was one to tell what would occur? Now, my dear, you urge me to make some approaches to Mr. Seymour with respect to money matters. Well, awkward as the position is, I have endeavored to do so, but have never got far enough, I am afraid, to make myself understood. My fault, I dare say, but just consider. There is nothing of the dependent in my relations with Mr. Seymour; he received me as an equal and we have associated as equals; when we first met there was no question raised as to a salary, and there has been none since. How, then, am I to go to him and say: 'You are indebted to me in such or such a sum'? It would be so coarse, and I do not see justification for it. If I have made a mistake I must suffer for it, and must not call upon another person to do so for me. That would not be consistent, or honorable, or gentlemanly. After all, my dearest, the standard of conduct is not arbitrary. What it would be right for Mr. Jones or Mr. Smith to do would not be right for me, and the reverse. What is to be done, then? Having made a mistake, I am too proud--perhaps not quite broken in yet--to get out of it in the most honorable way I can. It is in my power to say to Mr. Seymour: 'A thousand thanks for the pleasure you have afforded me and for the courtesies you have extended towards me, but my time is precious, and I must not keep away from my wife any longer.' That would be all right, but to follow it up with a request for a loan to enable me to get back to England would be so mean and coarse that I could never bring my tongue to utter the words. Can you understand my position, my darling? It is a humiliation to me to ask the question, but I am in a cleft stick, and am positively powerless to help myself. What a pity, what a pity that my original idea of living in a travelling caravan could not be carried out! Do you remember that
delicious evening, dear? I should like to pass such another, and I dare say I should commit myself again to the foolish wish that it would last forever. "Now, my dearest, I am quite cheerful and light-hearted, but there is something I must tell you. I must warn you first, though, that this is a secret between ourselves; on no account must it be disclosed to your uncle or to any other person. Much may hang upon it--I do not know what; I prefer not to think; but at all events I must do nothing base or treacherous. If confidence has been reposed in me I must not betray it. But mark what I say, dear; it is only lately that I have come to a knowledge or a suspicion of certain things, and no hint must escape me of that knowledge or suspicion (it is a mixture of both) to any except yourself. "In speaking of Mr. Seymour you would naturally suppose that you were speaking of an Englishman, the name being unmistakably English. But Mr. Seymour is not an Englishman, and therefore the name must be assumed. As to this I have no definite information, but it is so certainly. It did not occur to me to mention to you that Mr. Seymour was probably a foreigner, the matter seeming to be of such small importance. He speaks English fluently, with the slightest accent; speaks also French, German, Italian, and Russian, as to the precisely correct accent of any one of which I am not a competent judge. I am not given to curiosity, and have a habit of believing what I am told; that is, I do not look much below the surface of things. Now, this may lead a man into a scrape. "Were I alone, without wife and child, I should, I dare say, allow myself to drift according to circumstances, but I am bound to consider you. Well, then, Mr. Seymour, with whose right name I am not acquainted, has ideas with which I am not sure whether I agree; he has a mission with which I am not sure whether I sympathize. There are large movements in public affairs which require deep investigation before one finally and firmly makes up one's mind. Take, for example, the revolutionary movement--the idea that all
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  • 5. 8th Edition Financial Analysis withMicrosoft® Excel® 2016 Timothy R. Mayes Financial Analysis with Microsoft ® Excel ® 2016 Mayes 8th Edition 8th Edition Financial Analysis withMicrosoft® Excel® 2016 Timothy R. Mayes To register or access your online learning solution or purchase materials for your course, visit www.cengagebrain.com.
  • 6. Financial Analysis with Microsoft® Excel® EIGHTH EDITION Timothy R. Mayes Metropolitan State College of Denver Australia • Brazil • Mexico • Singapore • United Kingdom • United States
  • 7. Financial Analysis with Microsoft® Excel® , Eighth Edition Timothy R. Mayes SVP, GM Social Science and Qualitative Business: Erin Joyner Executive Product Director: Mike Schenk Sr. Product Team Manager: Joe Sabatino Project Manager: Julie Dierig Content Developer: Tara Slagle, MPS North America LLC Product Assistant: Renee Schnee Sr. Marketing Manager: Nate Anderson Manufacturing Planner: Kevin Kluck Intellectual Property Analysts: Brittani Morgan and Ashley Maynard Intellectual Property Project Manager: Kathryn Kucharek Art and Cover Direction, Production Management, and Composition: Lumina Datamatics Inc. Sr. Art Director: Michelle Kunkler Cover Image: Cover Screenshots are used with permission from Microsoft Corporation, Microsoft Excel® is a registered trademark of Microsoft Corporation. © 2016 Microsoft. © 2018, 2015 Cengage Learning® Unless otherwise noted, all content is © Cengage Microsoft Excel: Microsoft Excel is a registered trademark of Microsoft Corporation. 2014 Microsoft ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706. For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions. Further permissions questions can be emailed to permissionrequest@cengage.com. Library of Congress Control Number: 2017934413 ISBN: 978-1-337-29804-9 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world. Find your local representative at www.cengage.com/global Cengage Learning products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage Learning Solutions, visit www.cengage.com. Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com. Printed in the United States of America Print Number: 01 Print Year: 2017
  • 8. iii Preface xiii Purpose of the Book xiv Target Audience xiv A Note to Students xv Organization of the Book xv Outstanding Features xvi Pedagogical Features xvii Supplements xvii Typography Conventions xviii Changes from the 7th Edition xix A Note on the Internet xix Acknowledgments xx CHAPTER 1 Introduction to Excel 2016 1 Spreadsheet Uses 2 Starting Microsoft Excel 2 Parts of the Excel Screen 3 The File Tab and Quick Access Toolbar 3 The Home Tab 4 The Formula Bar 6 The Worksheet Area 6 Sheet Tabs 7 Status Bar 7 Navigating the Worksheet 8 Selecting a Range of Cells 9 Using Defined Names 9 Entering Text and Numbers 10 Formatting and Alignment Options 11 Formatting Numbers 13 Adding Borders and Shading 14 Entering Formulas 14 Copying and Moving Formulas 17 Mathematical Operators 18 Parentheses and the Order of Operations 18 Contents
  • 9. Contents iv Using Excel’s Built-In Functions 20 Using the Insert Function Dialog Box 21 “Dot Functions” in Excel 2016 23 Using User-Defined Functions 24 Creating Graphics 26 Creating Charts in a Chart Sheet 26 Creating Embedded Charts 27 Formatting Charts 28 Changing the Chart Type 29 Creating Sparkline Charts 31 Printing 32 Using Excel with Other Applications 33 Quitting Excel 34 Best Practices for Spreadsheet Models 35 Summary 36 Problems 37 Internet Exercise 40 CHAPTER 2 The Basic Financial Statements 41 The Income Statement 42 Building an Income Statement in Excel 42 The Balance Sheet 47 Building a Balance Sheet in Excel 47 Improving Readability: Custom Number Formats 49 Common-Size Financial Statements 52 Creating Common-Size Income Statements 52 Creating a Common-Size Balance Sheet 54 Building a Statement of Cash Flows 55 Using Excel’s Outliner 60 Common-Size Statement of Cash Flows 62 Summary 65 Problems 66 Internet Exercise 68 CHAPTER 3 Financial Statement Analysis Tools 69 Liquidity Ratios 70 The Current Ratio 71 The Quick Ratio 72
  • 10. v Contents Efficiency Ratios 73 Inventory Turnover Ratio 73 Accounts Receivable Turnover Ratio 74 Average Collection Period 74 Fixed Asset Turnover Ratio 75 Total Asset Turnover Ratio 76 Leverage Ratios 77 The Total Debt Ratio 77 The Long-Term Debt Ratio 78 The Long-Term Debt to Total Capitalization Ratio 78 The Debt to Equity Ratio 79 The Long-Term Debt to Equity Ratio 80 Coverage Ratios 80 The Times Interest Earned Ratio 80 The Cash Coverage Ratio 81 Profitability Ratios 82 The Gross Profit Margin 82 The Operating Profit Margin 83 The Net Profit Margin 83 Return on Total Assets 84 Return on Equity 84 Return on Common Equity 85 DuPont Analysis 85 Analysis of EPI’s Profitability Ratios 87 Financial Distress Prediction 88 The Original Z-Score Model 88 The Z-Score Model for Private Firms 90 Using Financial Ratios 90 Trend Analysis 90 Comparing to Industry Averages 91 Company Goals and Debt Covenants 93 Automating Ratio Analysis 93 Economic Profit Measures of Performance 95 Summary 98 Problems 101 Internet Exercise 102 CHAPTER 4 The Cash Budget 103 The Worksheet Area 105 Using Date Functions 105
  • 11. Contents vi Calculating Text Strings 106 Sales and Collections 107 Purchases and Payments 109 Collections and Disbursements 110 Calculating the Ending Cash Balance 112 Repaying Short-Term Borrowing 114 Using the Cash Budget for What-If Analysis 115 The Scenario Manager 117 Adding Interest and Investment of Excess Cash 121 Calculating Current Borrowing 123 Using the Formula Auditing Tools to Avoid Errors 123 Calculating Current Investing 127 Working Through the Example 128 Summary 131 Problems 133 CHAPTER 5 Financial Statement Forecasting 139 The Percent of Sales Method 140 Forecasting the Income Statement 140 Forecasting Assets on the Balance Sheet 144 Forecasting Liabilities on the Balance Sheet 146 Discretionary Financing Needed 147 Using Iteration to Eliminate DFN 149 Other Forecasting Methods 152 Linear Trend Extrapolation 152 Regression Analysis 156 Statistical Significance 160 Summary 163 Problems 164 Internet Exercises 166 CHAPTER 6 Forecasting Sales with Time Series Methods 167 Time Series Decomposition 168 Smoothing a Time Series with Moving Averages 169 Isolating the Seasonality of a Time Series 171 Extracting the Irregular Component 172 Time Series Forecasting Techniques 173 Measuring Forecast Errors 174 Exponential Smoothing Methods 174
  • 12. vii Contents Simple Exponential Smoothing 175 Holt’s Linear Trend Exponential Smoothing Model 177 Forecasting Time Series with Both Trend and Seasonality 179 Holt-Winters Additive Seasonal Model 180 Using the Built-in ETS Model 182 Holt-Winters Multiplicative Seasonal Model 184 Time Series Forecasting Using Regression Analysis 186 Forecasting the Trend Using Regression 186 Using Seasonal Dummy Variables to Account for Seasonality 188 Summary 191 Problems 192 Internet Exercise 193 CHAPTER 7 Break-Even and Leverage Analysis 195 Break-Even Points 196 Calculating Break-Even Points in Excel 197 Other Break-Even Points 199 Using Goal Seek to Calculate Break-Even Points 201 Leverage Analysis 202 The Degree of Operating Leverage 203 The Degree of Financial Leverage 205 The Degree of Combined Leverage 207 Extending the Example 208 Linking Break-Even Points and Leverage Measures 209 Summary 210 Problems 212 Internet Exercise 213 CHAPTER 8 The Time Value of Money 215 Future Value 216 Using Excel to Find Future Values 217 Present Value 218 Annuities 219 Present Value of an Annuity 220 Future Value of an Annuity 222 Solving for the Annuity Payment 224 Solving for the Number of Periods in an Annuity 225 Solving for the Interest Rate in an Annuity 226 Deferred Annuities 228
  • 13. Contents viii Graduated Annuities 230 Present Value of a Graduated Annuity 230 Future Value of a Graduated Annuity 233 Solving for the Graduated Annuity Payment 234 Uneven Cash Flow Streams 234 Solving for the Yield in an Uneven Cash Flow Stream 236 Nonannual Compounding Periods 237 Continuous Compounding 241 Summary 242 Problems 243 CHAPTER 9 Common Stock Valuation 247 What Is Value? 248 Fundamentals of Valuation 249 Determining the Required Rate of Return 250 A Simple Risk Premium Model 251 CAPM: A More Scientific Model 251 Valuing Common Stocks 254 The Constant-Growth Dividend Discount Model 255 The Two-Stage Growth Model 260 Three-Stage Growth Models 262 Alternative Discounted Cash Flow Models 266 The Earnings Model 266 The Free Cash Flow Model 270 Relative Value Models 273 Preferred Stock Valuation 275 Summary 277 Problems 278 Internet Exercise 280 CHAPTER 10 Bond Valuation 283 Bond Valuation 284 Valuing Bonds between Coupon Dates 286 Using Excel’s Advanced Bond Functions 288 Bond Return Measures 291 Current Yield 291 Yield to Maturity 292
  • 14. ix Contents Yield to Call 294 Returns on Discounted Debt Securities 296 The U.S. Treasury Yield Curve 298 Bond Price Sensitivities 300 Changes in the Required Return 300 Changes in Term to Maturity 302 Comparing Two Bonds with Different Maturities 305 Comparing Two Bonds with Different Coupon Rates 307 Duration and Convexity 308 Duration 308 Modified Duration 310 Visualizing the Predicted Price Change 311 Convexity 313 Summary 315 Problems 318 Internet Exercise 320 CHAPTER 11 The Cost of Capital 321 The Appropriate Hurdle Rate 322 The Weighted Average Cost of Capital 323 Determining the Weights 324 WACC Calculations in Excel 325 Calculating the Component Costs 326 The Cost of Common Equity 327 The Cost of Preferred Equity 328 The Cost of Debt 329 Using Excel to Calculate the Component Costs 330 The After-Tax Cost of Debt 330 The Cost of Preferred Stock 332 The Cost of Common Stock 332 The Role of Flotation Costs 333 Adding Flotation Costs to Our Worksheet 334 The Cost of Retained Earnings 335 The Marginal WACC Curve 336 Finding the Break-Points 336 Creating the Marginal WACC Chart 340 Summary 342 Problems 342 Internet Exercise 344
  • 15. Contents x CHAPTER 12 Capital Budgeting 347 Estimating the Cash Flows 348 The Initial Outlay 349 The Annual After-Tax Operating Cash Flows 350 The Terminal Cash Flow 351 Estimating the Cash Flows: An Example 352 Calculating the Relevant Cash Flows 357 Making the Decision 358 The Payback Method 359 The Discounted Payback Period 361 Net Present Value 363 The Profitability Index 365 The Internal Rate of Return 366 Problems with the IRR 367 The Modified Internal Rate of Return 369 Sensitivity and Scenario Analysis 372 NPV Profile Charts 372 Scenario Analysis 373 The Optimal Capital Budget 376 Optimal Capital Budget without Capital Rationing 376 Optimal Capital Budget under Capital Rationing 378 Other Techniques 383 Summary 383 Problems 384 CHAPTER 13 Risk and Capital Budgeting 389 Review of Some Useful Statistical Concepts 390 The Expected Value 390 Measures of Dispersion 392 Using Excel to Measure Risk 395 The Freshly Frozen Fish Company Example 395 Introducing Uncertainty 399 Sensitivity Analysis 399 Scenario Analysis 404 Calculating the Expected NPV from the Scenarios 406 Calculating the Variance and Standard Deviation 407 Calculating the Probability of a Negative NPV 409 Monte Carlo Simulation 410 The Risk-Adjusted Discount Rate Method 417 The Certainty-Equivalent Approach 418
  • 16. xi Contents Summary 420 Problems 422 CHAPTER 14 Portfolio Statistics and Diversification 425 Portfolio Diversification Effects 426 Determining Portfolio Risk and Return 428 Portfolio Standard Deviation 429 Changing the Weights 432 Portfolios with More than Two Securities 434 Creating a Variance/Covariance Matrix 434 Calculating the Portfolio Standard Deviation 438 The Efficient Frontier 439 Locating Portfolios on the Efficient Frontier in Excel 440 Charting the Efficient Frontier 443 The Capital Market Line 445 Charting the Capital Market Line 448 Identifying the Market Portfolio 449 Utility Functions and the Optimal Portfolio 452 Charting Indifference Curves 452 The Capital Asset Pricing Model 454 The Security Market Line 455 Summary 457 Problems 458 Internet Exercise 461 CHAPTER 15 Writing User-Defined Functions with VBA 463 What Is a Macro? 464 Two Types of Macros 464 The Visual Basic Editor 466 The Project Explorer 467 The Code Window 468 The Parts of a Function 468 Writing Your First User-Defined Function 469 Writing More Complicated Functions 473 Variables and Data Types 473 The If-Then-Else Statement 475 Looping Statements 478 Using Worksheet Functions in VBA 481 Using Optional Arguments 482
  • 17. Contents xii Using ParamArray for Unlimited Arguments 483 Debugging VBA Code 484 Breakpoints and Code Stepping 484 The Watch Window 485 The Immediate Window 486 Creating Excel Add-Ins 487 Best Practices for VBA 488 Summary 489 Problems 490 CHAPTER 16 Analyzing Datasets with Tables and Pivot Tables 493 Creating and Using an Excel Table 494 Removing Duplicate Records from the Table 496 Filtering the Table 497 Sorting and Filtering Numeric Fields 498 Structured Referencing for Formulas in Tables 500 Using Get & Transform 501 Cleaning the Dataset 503 An Example Data Query 503 Using Pivot Tables 505 Creating a Pivot Table 505 Formatting the Pivot Table 507 Rearranging the Pivot Table and Adding Fields 510 Transforming the Data Field Presentation 511 Calculations in Pivot Tables 512 Pivot Tables for Financial Statements 513 Grouping Data by Date 515 Using Pivot Charts to Show Trends Over Time 517 Displaying Multiple Subtotals 518 Using Calculated Fields for Financial Ratios 519 Filtering Data with Slicers and Timelines 521 Extracting Data from a Pivot Table 522 Summary 523 Problems 524 Internet Exercise 527 APPENDIX Directory of User-Defined Functions in FameFncs.xlam 529 INDEX 533
  • 18. xiii Preface Electronic spreadsheets have been available for microcomputers since the introduction of VisiCalc® for the Apple I in June 1979. The first version of Lotus 1-2-3® in January 1983 convinced businesses that the IBM PC was a truly useful productivity-enhancing tool. Today, any student who leaves business school without at least basic spreadsheet skills is truly at a disadvantage. Much as earlier generations had to be adept at using a slide rule or financial calculator, today’s manager needs to be proficient in the use of a spreadsheet. International competition means that companies must be as efficient as possible. No longer can managers count on having a large staff of “number crunchers” at their disposal. Microsoft first introduced Excel in 1985 for the Apple Macintosh and showed the world that spreadsheets could be both powerful and easy to use, not to mention fun. Excel 2.0 was introduced to the PC world in 1987 for Microsoft Windows version 1.0, where it enjoyed something of a cult following. With the introduction of version 3.0 of Windows, sales of Excel exploded so that today it is the leading spreadsheet on the market. As of this writing, Excel 2016 (also known as Excel version 16) is the current version. Unlike Excel 2007, which introduced the Ribbon interface, Excel 2016 is more evolutionary than revolutionary. The changes are mostly cosmetic, though the addition of Get & Transform is a truly valuable new feature (see Chapter 16). While the book has been written with the current version in mind, it can be used with older versions, if allowances are made for minor interface differences. The user interface has always been different on the Apple Mac, but Excel 2016 for Mac supports virtually all of the features discussed in this book (the Analysis ToolPak add-in was finally added in this version). The major missing features are pivot charts and the Get &
  • 19. Preface xiv Transform tools. Both of those features are used in Chapter 16, but Get & Transform is also used in Chapter 10 to get yield curve data from the U.S. Treasury Web site. Mac users can access the yield curve data by using the From Web tool in Get External Data instead. I have made a document, Fame 8e Guide for Mac Users.pdf, that is available on the Financial Analysis with Microsoft Excel, 8th ed. Instructor Companion Web site. Purpose of the Book Financial Analysis with Microsoft Excel, 8th ed. was written to demonstrate useful spreadsheet techniques and tools in a financial context. This allows readers to see the material in a way with which they are familiar. For students just beginning their education in finance, the book provides a thorough explanation of all of the concepts and equations that are usually covered. In other words, it is a corporate finance textbook, but it uses Excel instead of financial calculators. Students with no prior experience with spreadsheets will find that using Excel is very intuitive, especially if they have used other Windows applications. For these students, Financial Analysis with Microsoft Excel, 8th ed. will provide a thorough introduction to the use of spreadsheets from basic screen navigation skills to building fairly complex financial models. I have found that even students with good spreadsheet skills have learned a great deal more about using Excel than they expected. Finally, I feel strongly that providing pre-built spreadsheet templates for students to use is a disservice. For this reason, this book concentrates on spreadsheet building skills. I believe that students can gain valuable insights and a deeper understanding of financial analysis by actually building their own spreadsheets. By creating their own spreadsheets, students will have to confront many issues that might otherwise be swept under the carpet. It continually amazes me how thankful students are when they are actually forced to think rather than just to “plug and go.” For this reason the book concentrates on spreadsheet building skills (though all of the templates are included for instructors) so that students will be encouraged to think and truly understand the problems on which they are working. Target Audience Financial Analysis with Microsoft Excel is aimed at a wide variety of students and practitioners of finance. The topics covered generally follow those in an introductory financial management course for undergraduates or first-year MBA students. Because of the emphasis on spreadsheet building skills, the book is also appropriate as a reference for case- oriented courses in which the spreadsheet is used extensively. I have been using the book in
  • 20. xv Organization of the Book my Financial Modeling course since 1995, and students consistently say that it is the most useful course they have taken. A sizable number of my former students have landed jobs due to their superior spreadsheet skills. I have tried to make the book complete enough that it may also be used for self-paced learning, and, if my e-mail is any guide, many have successfully taken this route. I assume, however, that the reader has some familiarity with the basic concepts of accounting and statistics. Instructors will find that their students can use this book on their own time to learn Excel, thereby minimizing the amount of class time required for teaching the rudiments of spreadsheets. Practitioners will find that the book will help them transfer skills from other spreadsheets to Excel and, at the same time, refresh their knowledge of corporate finance. A Note to Students As I have noted, this book is designed to help you learn finance and understand spreadsheets at the same time. Learning finance alone can be a daunting task, but I hope that learning to use Excel at the same time will make your job easier and more fun. Be sure to experiment with the examples by changing numbers and creating charts. You will likely find that learning the material and skills presented is more difficult if you do not work the examples presented in each chapter. While this will be somewhat time consuming, I encourage you to work along with, rather than just read, the book as each example is discussed. Further, I suggest that you try to avoid the trap of memorizing Excel formulas. Instead, try to understand the logic of the formula so that you can more easily apply it in other, slightly different, situations in the future. Make sure that you save your work often, and keep a current backup. Organization of the Book Financial Analysis with Microsoft Excel, 8th ed. is organized along the lines of an introductory financial management textbook. The book can stand alone or be used as an adjunct to a regular text, but it is not “just a spreadsheet book” and shouldn’t be treated as a cookbook with recipes. In most cases, topics are covered at the same depth as the material in conventional textbooks; in many cases, the topics are covered in greater depth. For this reason, I believe that Financial Analysis with Microsoft Excel, 8th ed. can be used as a comprehensive primary text. The book is organized as follows: • Chapter 1: Introduction to Excel 2016 • Chapter 2: The Basic Financial Statements
  • 21. Preface xvi • Chapter 3: Financial Statement Analysis Tools • Chapter 4: The Cash Budget • Chapter 5: Financial Statement Forecasting • Chapter 6: Forecasting Sales with Time Series Methods • Chapter 7: Break-Even and Leverage Analysis • Chapter 8: The Time Value of Money • Chapter 9: Common Stock Valuation • Chapter 10: Bond Valuation • Chapter 11: The Cost of Capital • Chapter 12: Capital Budgeting • Chapter 13: Risk and Capital Budgeting • Chapter 14: Portfolio Statistics and Diversification • Chapter 15: Writing User-Defined Functions with VBA • Chapter 16: Analyzing Datasets with Tables and Pivot Tables • Appendix: Directory of User-Defined Functions in FameFncs.xlam Extensive use of built-in functions, charts, and other tools (e.g., Scenario Manager and Solver) throughout the book encourages a much deeper exploration of the models presented than do more traditional methods. Questions such as, “What would happen if...” are easily answered with the tools and techniques taught in this book. Outstanding Features The most outstanding feature of Financial Analysis with Microsoft Excel, 8th ed. is its use of Excel as a learning tool rather than just a fancy calculator. Students using the book will be able to demonstrate to themselves how and why things are the way they are. Once students create a worksheet, they understand how it works and the assumptions behind the calculations. Thus, unlike the traditional “template” approach, students gain a deeper understanding of the material. In addition, the book greatly facilitates the professors’ use of spreadsheets in their courses. The text takes a self-teaching approach used by many other “how-to” spreadsheet books, but it provides opportunities for much more in-depth experimentation than the competition. For
  • 22. xvii Outstanding Features example, scenario analysis is an often recommended technique, but it is rarely demonstrated in any depth. This book uses the tools that are built into Excel to greatly simplify computation-intensive techniques, eliminating the boredom of tedious calculation. Other examples include regression analysis, linear and nonlinear programming, and Monte Carlo simulation. The book encourages students to actually use the tools that they have learned about in their statistics and management science classes. Pedagogical Features Financial Analysis with Microsoft Excel, 8th ed. begins by teaching the basics of Excel. Then, the text uses Excel to build the basic financial statements that students encounter in all levels of financial management courses. This coverage then acts as a “springboard” into more advanced material such as performance evaluation, forecasting, valuation, capital budgeting, and modern portfolio theory. Each chapter builds upon the techniques learned in prior chapters so that the student becomes familiar with Excel and finance at the same time. This type of approach facilitates the professor’s incorporation of Excel into a financial management course since it reduces, or eliminates, the necessity of teaching spreadsheet usage in class. It also helps students to see how this vital “tool” is used to solve the financial problems faced by practitioners. The chapters are organized so that a problem is introduced, solved by traditional methods, and then solved using Excel. I believe that this approach relieves much of the quantitative complexity while enhancing student understanding through repetition and experimentation. This approach also generates interest in the subject matter that a traditional lecture cannot (especially for nonfinance business majors who are required to take a course in financial management). Once they are familiar with Excel, my students typically enjoy using it and spend more time with the subject than they otherwise would. In addition, since charts are used extensively (and are created by the student), the material may be better retained. A list of learning objectives precedes each chapter, and a summary of the major Excel functions discussed in the chapter is included at the end. In addition, each chapter contains homework problems, and many include Internet Exercises that introduce students to sources of information on the Internet. Supplements The Instructor’s Manual and other resources, available online, contain the following: (These materials are available to registered instructors at the Instructor Companion Web site for Financial Analysis with Microsoft Excel, 8th ed., www.cengagebrain.com). • The completed worksheets with solutions to all problems covered in the text. Having this material on the Instructor Companion Web site (www.cengagebrain.com) allows the instructor to easily create transparencies or give live demonstrations via computer projec- tions in class without having to build the spreadsheets from scratch.
  • 23. Preface xviii • Additional Excel spreadsheet problems for each chapter that relate directly to the con- cepts covered in that chapter. Each problem requires the student to build a worksheet to solve a common financial management problem. Often the problems require solutions in a graphical format. • Complete solutions to the in-text homework problems and those in the Instructor’s Manual and on the Instructor Companion Web site, along with clarifying notes on techniques used. • An Excel add-in program that contains some functions that simplify complex calcula- tions such as the two-stage common stock valuation model and the payback period, among many others (see the Appendix for a complete listing of the functions). Also included is an add-in program for performing Monte-Carlo simulations discussed exten- sively in Chapter 13, and an add-in to create “live” variance/covariance matrices. These add-ins are available on the Web site. Typography Conventions The main text of this book is set in the 10-point Times New Roman True Type font. Text or numbers that readers are expected to enter are set in the 10 point Courier New True Type font. The names of built-in functions are set in small caps and boldface. Function arguments can be either required or optional. Required inputs are set in small caps and are italicized and boldface. Optional inputs are set in small caps and italicized. As an example, consider the PV function (introduced in Chapter 8): PV(RATE, NPER, PMT, FV, TYPE) In this example, PV is the name of the function, RATE, NPER, and PMT, are the required arguments, while FV and TYPE are optional. In equations and the text, equation variables (which are distinct from function arguments) are italicized. As an example, consider the PV equation: I hope that these conventions will help avoid confusion due to similar terms being used in different contexts. PV FVN 1 i + ( ) N ------------------ =
  • 24. xix A Note on the Internet Changes from the 7th Edition The overall organization of the book remains similar, but there have been many changes throughout the book. All of the chapters have been updated, but the more important changes include: Chapter 1—Updated for Excel 2016, including coverage of the new charting interface that uses buttons for chart elements and panels for formatting. Chapter 6—This is a completely new chapter covering the use of time series forecasting techniques for forecasting revenue. It includes a method of decomposing a time series into its component parts, as well as forecasting techniques that deal with trends and seasonality. Chapter 8—Added to the coverage of graduated annuities with a discussion of how to calculate the payment amount. In addition, the existing user-defined functions were reworked so as to be more consistent with the built-in time value functions. Chapter 10—Added a method of calculating the convexity of a bond on any date using the built-in PRICE function. This method is simple but is still a close approximation. I have also updated the FAME_CONVEXITY function to calculate exact convexity on any date. Additionally, I have used the Get & Transform (see below) tools to query the U.S. Treasury Web site for data used to create the yield curve. Chapter 16—Added coverage of the new Get & Transform tool that is available on the Data tab. This is a very powerful tool that is used to query database files, Excel worksheets, and Web sites. It is essentially a built-in ETL (Extract, Transform, and Load) tool that makes processing internal or external data much easier than before. In addition, I swapped the positions of Chapters 3 and 4 so that coverage of financial ratios now follows coverage of financial statements. A Note on the Internet I have tried to incorporate Internet Exercises into those chapters where the use of the Internet is applicable. In many cases, the necessary data simply is not available to the public or very difficult to obtain online (e.g., cash budgeting), so some chapters do not have Internet Exercises. For those chapters that do, I have tried to describe the steps necessary to obtain the data—primarily from either the SEC’s Edgar System or Yahoo! Finance. It should be noted that Web sites change frequently and these instructions and URLs may change in the future. I chose the Edgar System and Yahoo! Finance because I believe that these sites are the least likely to undergo severe changes and/or disappear completely. In many cases, there are alternative sites from which the data can be obtained if it is no longer available from the given site. All Excel spreadsheets for students’ and instructors’ use (as referenced in the book) are available at the Student and Instructor Companion Web sites (www.cengagebrain.com).
  • 25. Preface xx Acknowledgments All books are collaborative projects, with input from more than just the listed authors. This is true in this case as well. I wish to thank those colleagues and students who have reviewed and tested the book to this point. Any remaining errors are my sole responsibility, and they may be reported to me by e-mail. For this edition, I would like to thank two of my colleagues at Metro State: Qiongqi Xiao and Su-Jane Chen were very kind to review chapters or sections of chapters. Douglas Jordan of Sonoma State University also provided valuable input, particularly the suggestion of swapping Chapters 3 and 4. The input of the anonymous reviewers who responded to surveys is also greatly appreciated. I would also like to thank Debra Dalgleish, an author of several books on pivot tables, Microsoft Excel MVP, and a blogger at blog.contextures.com, for answering some technical questions about pivot tables. I would also like to thank the several reviewers who spent a great deal of time and effort reading over the previous editions. These reviewers are Tom Arnold of the University of Richmond, Denise Bloom of Viterbo University, David Suk of Rider College, Mark Holder of Kent State University, Scott Ballantyne of Alvernia College, John Stephens of Tri State University, Jong Yi of California State University Los Angeles, and Saiyid Islam of Virginia Tech. I sincerely appreciate their efforts. In particular, I would like to thank Nancy Jay of Mercer University–Atlanta for her scrupulous editing of the chapters and homework problems in the first three editions. Many people long ago provided invaluable help on the first and second editions of this text, and their assistance is still appreciated. Professional colleagues include Ezra Byler, Anthony Crawford, Charles Haley, David Hua, Stuart Michelson, Mohammad Robbani, Gary McClure, and John Settle. In addition, several of my now former students at Metropolitan State University of Denver were helpful—most especially, Peter Ormsbee, Marjo Turkki, Kevin Hatch, Ron LeClere, Christine Schouten, Edson Holland, Mitch Cohen, and Theresa Lewingdon. Finally, I wish to express my gratitude to Joe Sabatino (Senior Product Team Manager), Julie Dierig (Project Manager), and Tara Slagle (Senior Content Project Manager) of the Cengage Learning team. Without their help, confidence, and support, this book would never have been written. To anybody I have forgotten, I heartily apologize. I encourage you to send your comments and suggestions, however minor they may seem to you, to mayest@msudenver.edu. Timothy R. Mayes December 2016
  • 26. 1 CHAPTER 1 Introduction to Excel 2016 The term “spreadsheet” covers a wide variety of elements useful for quantitative analysis of all kinds. Essentially, a spreadsheet is a simple tool consisting of a matrix of cells that can store numbers, text, or formulas. The spreadsheet’s power comes from its ability to recalculate results as you change the contents of other cells. No longer does the user need to do these calculations by hand or on a calculator. Instead, with a properly constructed spreadsheet, changing a single number (say, a sales forecast) can result in literally thousands of automatic changes in the model. The freedom and productivity enhancement provided by modern spreadsheets present an unparalleled opportunity for learning financial analysis. After studying this chapter, you should be able to: 1. Explain the basic purpose of a spreadsheet program. 2. Identify the various components of the Excel screen. 3. Navigate the Excel worksheet (entering, correcting, and moving data within the worksheet). 4. Explain the purpose and usage of Excel’s built-in functions and user-defined functions. 5. Create graphics and know how to print and save files in Excel.
  • 27. CHAPTER 1: Introduction to Excel 2016 2 Spreadsheet Uses Spreadsheets today contain built-in analytical capabilities previously unavailable in a single package. Years ago, users often had to learn a variety of specialized software packages to do any relatively complex analysis. With the newest versions of Microsoft Excel, users can perform tasks ranging from the routine maintenance of financial statements to multivariate regression analysis to Monte Carlo simulations of hedging strategies. It is impossible to enumerate all of the possible applications for spreadsheets. You should keep in mind that spreadsheets are useful not only for financial analysis but also for any type of quantitative analysis whether your specialty is in marketing, management, engineering, statistics, or economics. For that matter, a spreadsheet can also prove valuable for personal uses. With Excel, it is a fairly simple matter to build a spreadsheet to monitor your investment portfolio, plan for retirement, experiment with various mortgage options when buying a house, create and maintain a mailing list, and so on. The possibilities are quite literally endless. The more comfortable you become with the spreadsheet, the more uses you will find. Using a spreadsheet can help you find solutions that you never would have imagined on your own. Above all, feel free to experiment and try new things as you gain more experience working with spreadsheet programs, particularly Excel. The above is not meant to suggest that Excel is the only analytical tool you’ll ever need. For example, Excel is not meant to be a relational database, though it has some tools that allow it to work well for small databases (see Chapter 16). For bigger projects, however, Excel can serve as a very effective “front-end” interface to a database. It also isn’t a complete replacement for a dedicated statistics program, though it can work well for many statistical problems. Although Excel can be made to do just about anything, it isn’t always the best tool for the job. Still, it may well be the best tool that you or your colleagues know how to use. Starting Microsoft Excel Start Excel by double-clicking on the program’s icon. The location of the Excel icon will depend on the organization of your system. You may have the Excel icon (at left) on the desktop or in the taskbar. Otherwise, you can start Excel by clicking the Start button and then clicking the Excel 2016 tile, or type Excel into the search box at the bottom of the Start menu. If you have Windows 10 and a microphone, then you can even tell Cortana to “start Excel 2016.” For easier access, you may wish to create a Desktop or Taskbar shortcut. To do this, click on the Excel icon in the All Apps menu and drag the icon to the Desktop or Taskbar. Remember that a shortcut is not the program itself, so you can safely delete the shortcut if you later decide that you no longer need it. Excel 2016 Icon
  • 28. 3 Parts of the Excel Screen Parts of the Excel Screen If you have used any recent version of Excel, then you will be familiar with most of the user interface in Excel 2016. In Figure 1-1, note the labeled parts of the Excel screen. We will examine most of these parts separately. Please refer to Figure 1-1 as you read through each of the sections that follow. FIGURE 1-1 MICROSOFT EXCEL 2016 The File Tab and Quick Access Toolbar The File tab in Excel 2016 is similar to the File menu in most other Windows programs. It can be opened either by clicking the tab or by pressing Alt-F. Click the File tab when you need to open, save, print, or create a new file. The File tab also contains additional functionality. It opens in what is known as Backstage View, which takes over the entire window. This additional space, compared to a menu, allows for much more information to be displayed. For example, if you click the Print tab on the left side, you get access not only to all of the print settings but also to print preview on the same page. The Info tab is where you can set the document properties (author, keywords, etc.), inspect the document for hidden data that may reveal private details, encrypt the spreadsheet, and so on.
  • 29. CHAPTER 1: Introduction to Excel 2016 4 Finally, the File tab is the pathway to setting the program options. At the bottom of the tabs on the left you will find a link to Options. This launches the Excel Options dialog box where you can set all of the available options. It is advisable to go through the Excel Options to familiarize yourself with some of the things that you can control. While you may not understand all of the choices, at least you will know where to go when you need to change something (e.g., the user name, macro security level, or the default file locations). You also have the ability to customize the Ribbon. Click the File tab, choose Options, and then select Customize Ribbon in the dialog box. Here you can create new tabs, move buttons from one tab to another, remove them completely, and even export your customizations so that others can use them. The Quick Access toolbar (typically abbreviated as QAT) is located above the File tab and, by default, provides a button to save the current file as well as the Undo and Redo buttons. If you regularly use commands that aren’t located on the Home tab, you can easily customize the Quick Access toolbar to add those commands by right-clicking the QAT and choosing “Customize Quick Access Toolbar….” The dialog box is self-explanatory. You can also add or remove commands, such as Print Preview, by clicking the arrow to the right of the QAT. The Home Tab FIGURE 1-2 EXCEL 2016 HOME TAB Immediately below the title bar, Excel displays the various tabs in what is known as the Ribbon. Tabs are the toolbars that replaced the menus of pre-2007 versions. The Home tab contains the most commonly used commands, including the Cut, Copy, and Paste buttons, and the various cell formatting buttons. You can learn what function each button performs by letting the mouse pointer hover over a button. After a few seconds, a message will appear that informs you of the button’s function. This message is known as a ToolTip. ToolTips are used frequently by Excel to help you identify the function of various items on the screen. Note that several of the buttons (e.g., the Copy and Paste buttons) on the Ribbon have a downward-pointing arrow. This is a signal that the button has options besides the default behavior. For example, by clicking the arrow on the Paste button you will find that there are several choices regarding what to paste (e.g., just the formula, or the value without the formula). Clicking the upper half of a split button invokes the default purpose.
  • 30. 5 Parts of the Excel Screen The other tabs are named according to their functionality, and you will quickly learn which one to choose in order to carry out a command. Table 1-1 shows the other tabs and a short description of what they do. Note that another set of tabs will appear when you are working on charts. The Design and Format tabs contain all of the options that you will need for working with charts (see “Creating Graphics” on page 26). Furthermore, add-in programs may create additional tabs. TABLE 1-1 OTHER TABS IN THE EXCEL 2016 RIBBON Tab What It Does File File management features (open, save, close, print, etc.) and options. Insert Contains buttons for inserting pivot tables, charts, pictures, shapes, text boxes, equations, and other objects. Page Layout Has choices that control the look of the worksheet on the screen and when printed. You can change the document theme, the page margins and orientation, and so on. Formulas This is where to go when you want to insert a formula, create a defined name for a cell or range, or use the formula auditing tools to find errors. Data Contains buttons to guide you through getting data from other sources (such as an Access database, a Web site, or a text file). Launch tools such as the Scenario Manager, Goal Seek, Solver, and the Analysis Toolpak. Review Here you will find spell check, the thesaurus, and also commands for working with cell comments and worksheet protection. View Contains commands that control the worksheet views, zoom controls, and the visibility of various objects on the screen (such as gridlines and the formula bar). Developer Has tools that allow you to access the VBA editor, insert controls (e.g., dropdown lists), and work with XML. This tab is not visible by default, but can be enabled in Options. Add-ins This is where older Excel add-ins that create custom tool bars and menus will be located. Not visible unless older add-ins are installed. Power Pivot Power Pivot is an add-in for certain versions of Excel. It allows you to work with data files that are much larger than Excel can normally handle.
  • 31. CHAPTER 1: Introduction to Excel 2016 6 The Formula Bar As you work more in Excel to create financial models, you will find that the formula bar is one of its most useful features. The formula bar displays information about the currently selected cell, which is referred to as the active cell. The left part of the formula bar indicates the name or address of the selected cell (H9 in Figure 1-3). The right part of the formula bar displays the contents of the selected cell. If the cell contains a formula, the formula bar displays the formula while the cell itself displays the result of the formula. If text or numbers have been entered, then the text or numbers are displayed. FIGURE 1-3 THE EXCEL 2016 FORMULA BAR The fx button on the formula bar is used to show the Insert Function dialog box. This dialog box helps you to find and enter functions without having to memorize them. It works the same as the Insert Function button on the Formulas tab. See page 21 for more information. The chevron at the right of the formula bar is used to expand the formula bar. This is useful if you have long formulas that occupy more than one line. You can break long formulas across multiple lines by pressing Alt+Enter where you want the line to break. If you do this, then you can expand the formula bar even further by dragging its lower edge. The Worksheet Area The worksheet area is where the real work of the spreadsheet is done. The worksheet is a matrix of cells (1,048,576 rows by 16,384 columns),1 each of which can contain text, numbers, or formulas. Each cell is referred to by a column letter and a row number. Column letters (A, B, C, …, XFD) are listed at the top of each column, and row numbers (1, 2, 3, …, 1048576) are listed to the left of each row. The cell in the upper left corner of the worksheet is therefore referred to as cell A1, the cell immediately below A1 is referred to as cell A2, the cell to the right of A1 is cell B1, and so on. This naming convention is common to all spreadsheet programs. If not already, you will become comfortable with it once you have gained some experience working in Excel. The active cell can be identified by a solid black border around the cell. Note that the active cell is not always visible on the screen, but its address is always named in the leftmost portion of the formula bar. In the lower-right corner is the AutoFill handle (see page 11). 1. This is known as the “big grid” because it is much larger than in pre-2007 versions of Excel, which only supported up to 65,536 rows and 256 columns.
  • 32. 7 Parts of the Excel Screen Sheet Tabs FIGURE 1-4 THE SHEET TABS Excel worksheets are stored in a format that allows you to combine multiple worksheets into one file known as a workbook. This allows several related worksheets to be contained in one file for easy access. The sheet tabs, near the bottom of the screen, enable you to move easily from one sheet to another in a workbook. You may rename, copy, or delete any existing sheet or insert a new sheet by right-clicking a sheet tab with the mouse and making a choice from the resulting menu. You can change the order of the sheet tabs by clicking a tab and dragging it to a new position, or you can press the Ctrl key (option on Mac) and drag to copy it. To insert a new worksheet, click the New Sheet button to the right of the last worksheet. It is easy to do any of these operations on multiple worksheets at once, except for renaming. Simply click the first sheet and then Ctrl+click each of the others. (You can select a contiguous group of sheets by selecting the first and then Shift+click the last.) Now, right- click one of the selected sheets and select the appropriate option from the pop-up menu. When sheets are grouped, anything you do to one sheet gets done to all. This feature is useful if, for example, you need to enter identical data into multiple sheets or need to perform identical formatting on several sheets. To ungroup the sheets, either click on any nongrouped sheet or right-click a sheet tab and choose Ungroup Sheets from the pop-up menu. Another feature in Excel 2016 allows you to choose a color for each sheet tab by right-clicking the tab and choosing a Tab Color from the pop-up menu. The transport buttons to the left of the sheet tabs allow you to scroll through the list of sheet tabs. Right-clicking either of these buttons will display a pop-up menu that allows you to quickly jump to any sheet tab in the workbook. This is especially helpful when you have too many tabs for them all to be shown. Status Bar The status bar, located below the sheet tabs, contains information regarding the current state of Excel, as well as certain messages. For example, most of the time the only message is “Ready” indicating that Excel is waiting for input. At other times, Excel may add “Calculate” to the status bar to indicate that it needs to recalculate the worksheet because of changes. You can also direct Excel to do certain calculations on the status bar. For example, in Figure 1-5, Excel is showing the average, count, and sum of the highlighted cells in the worksheet.
  • 33. CHAPTER 1: Introduction to Excel 2016 8 FIGURE 1-5 THE STATUS BAR By right-clicking on this area of the status bar, you can also get Excel to calculate the count of numbers only, the minimum, or the maximum of any highlighted cells. This is useful when you need a quick calculation that doesn’t need to be in the worksheet. The right side of the status bar contains buttons to change the view of the worksheet (normal, page layout, and page break preview) as well as the zoom level. Navigating the Worksheet There are two principal ways for moving around within the worksheet area: the arrow keys and the mouse (or touchpad). For small distances the arrow keys provide an easy method of changing the active cell, but moving to more distant cells is usually easier with the mouse. Most keyboards have a separate keypad containing arrows pointing up, down, left, and right. If yours does not, then the numeric keypad can be used if the Num Lock function is off. You can use the Tab key to move one cell to the right. The Page Up and Page Down keys also work as you would expect. The mouse is even easier to use. When the mouse pointer is over the worksheet area, it will be in the shape of a fat cross. To change the active cell, move the mouse pointer over the destination cell and click. To move to a cell that is not currently displayed on the screen, click on the scroll bars until the cell is visible and then click on it. For example, if the active cell is A1 and you wish to make A100 the active cell, click on the scroll bar on the right hand part of the screen until A100 is visible. Move the mouse pointer over cell A100 and click with the left button. Each click on the scroll bar moves the worksheet up or down one page. If you wish to move up, click above the thumb. If down, click beneath the thumb. The thumb (or slider) is the button that moves up and down the scroll bar to indicate your position in the worksheet. To move more quickly, you can drag the thumb to the desired position. If you know the name or address of the cell to which you wish to move (for large worksheets remembering the cell address isn’t easy, but you can use named ranges), use the Go To command. The Go To command will change the active cell to whatever cell you indicate. The Go To dialog box can be used by clicking the Find & Select button on the Home tab and then choosing the Go To… command, by pressing the F5 function key, or by pressing the Ctrl+G key combination. To move to cell A50, simply press F5, type: A50 in the Reference box, and then press Enter. You will notice that cell A50 is now highlighted and visible on the
  • 34. 9 Navigating the Worksheet screen. You can also use Go To to find certain special cells (e.g., the last cell that has data in it) by pressing the Special… button in the Go To dialog box. Selecting a Range of Cells Many times you will need to select more than one cell at a time. For example, you may wish to apply a particular number format to a whole range of cells, or you might want to clear a whole range. Because it would be cumbersome to do this one cell at a time, especially for a large range, Excel allows you to simultaneously select a whole range and perform various functions on all of the cells at once. The easiest way to select a contiguous range of cells is to use the mouse. Simply point to the cell in the upper left corner of the range, and click and drag the mouse until the entire range is highlighted. As you drag the mouse, watch the left side of the formula bar. Excel will inform you of the number of selected rows and columns. In addition, the row and column headers will be highlighted for the selected cells. You can also use the keyboard to select a range. First change the active cell to the upper left corner of the range to be selected, press and hold down the Shift key, and use the arrow keys to highlight the entire range. Note that if you release the Shift key while pressing an arrow key, you will lose the selection. A very useful keyboard shortcut is the Shift+Ctrl+Arrow (any arrow key will work) combination. This is used to select all of the cells from the active cell up to, but not including, the first blank cell. For example, if you have 100 numbers in a column and need to apply a format, just select the first cell and then press Shift+Ctrl+Down arrow to select them all. This is faster and more accurate than using the mouse. Often it is also useful to select a discontiguous range (i.e., two or more unconnected ranges) of cells. To do this, simply select the first range as usual and then hold down the Ctrl key as you select the other ranges. Using Defined Names A named range is a cell, or group of cells, for which you have supplied a name. Named ranges can be useful in a number of different ways, but locating a range on a big worksheet is probably the most common use. To name a range of cells, start by selecting the range. For example, select A1:C5 and then choose Define Name from the Formulas tab. At the top of the New Name dialog box, enter a name, say MyRange (note that a range name cannot contain spaces or most special characters). Figure 1-6 shows how the dialog box should look. Note that the Refers to edit box shows the address to which the name refers.2 2. The name is actually defined as a formula. This is important for some of the more advanced uses of named ranges. For example, we can use a name to define constants, do calculations, or to create a reference to a range that grows as data is added.
  • 35. CHAPTER 1: Introduction to Excel 2016 10 FIGURE 1-6 THE DEFINE NAME DIALOG BOX You can also enter a comment that provides more details about the range and control the scope of the name. Scope refers to the location within which the name doesn’t need to be qualified by a sheet name. For example, MyRange was defined to have Workbook scope. Therefore, we can refer to that range from any cell of the entire workbook by just using its name (=MyRange). However, if the scope had been restricted to Sheet1, then from Sheet2 we would refer to the name with =Sheet1!MyRange. Note that defined names must be unique within their scope. So you can only have one workbook-scoped range named MyRange, but you could have one MyRange per worksheet if it is scoped to the sheet level. Once the range is named, you can select it using the Go To command (Find & Select then Go To…, or press F5). The name will appear in the list on the Go To dialog box. An even faster method is to use the Name Box on the left side of the formula bar. Simply drop the list and choose the named range that you wish to select. Named ranges can be used in formulas in place of cell addresses and can be used in the SERIES function for charts. Defined names don’t have to refer to a cell or range. They can be used to define a constant or formula instead. For example, you might create the name Pi and in the Refers to box enter: =3.14159 instead of a cell or range address. You can use that name in formulas whenever you need the value of Pi, though Excel already has a PI function. As useful as they can be, there is no requirement for you to ever use defined names. Entering Text and Numbers Each cell in an Excel worksheet can be thought of as a miniature word processor. Text can be entered directly into the cell and then formatted in a variety of ways. To enter a text string, first select the cell where you want the text to appear and then begin typing. It is that simple.
  • 36. 11 Navigating the Worksheet Excel is smart enough to know the difference between numbers and text, so there are no extra steps for entering numbers. Let’s try the following example of entering numbers and text into the worksheet. Select cell A1 and type: Microsoft Corporation Sales. In cell A2, enter: (Millions of Dollars). Select A3 and type: 2011 to 2016. Note that the entry in cell A3 will be treated as text by Excel because of the spaces and letters included. In cells A4 to F4, we now want to enter the years. In A4 type: 2016, in B4 type: 2015, select A4:B4, and move the mouse pointer over the lower right corner of the selection. The mouse pointer will now change to a skinny cross indicating that you can use the AutoFill feature.3 Click and drag the mouse to the right to fill in the remaining years. Notice that the most recent data is entered at the left and the most distant data at the right. This convention allows us to easily recognize and concentrate on what is usually the most important data. We have set up the headings for our first worksheet. Now let’s add Microsoft’s sales (in millions of dollars) for the years 2011 to 2016 into cells A5 to F5 as shown in Exhibit 1-1. EXHIBIT 1-1 THE FIRST WORKSHEET Formatting and Alignment Options The worksheet in Exhibit 1-1 isn’t very attractive. Notice that the text is displayed at the left side of the cells, while the numbers are at the right. By default, this is the way that Excel aligns text and numbers. However, we can easily change the way that these entries are displayed through the use of the formatting and alignment options. Before continuing, we should define a few typographical terms. A “typeface” is a particular style of drawing letters and numbers. For example, the main text of this book is set in the Times New Roman typeface. However, the text that you are expected to enter into a worksheet is displayed in the Courier New typeface. Typeface also refers to whether the text is drawn in bold, italics, or perhaps bold italics. 3. AutoFill can be used to fill any series that Excel can recognize. For example, type January in a cell and drag the AutoFill handle to automatically fill in month names. You can define your own series by clicking the Edit Custom Lists button under General in the Advanced category of Options.
  • 37. CHAPTER 1: Introduction to Excel 2016 12 The term “type size” refers to the size of the typeface. We normally refer to the type size in “points.” Each point represents an increment of 1/72nd of an inch, so there are 72 points to the inch. A typeface printed at a 12-point size is larger than the same typeface printed at a size of 10 points. Informally, we refer to the typeface and type size combination as a font. So when we say “change the font to 12-point bold Times New Roman,” it is understood that we are referring to a particular typeface (Times New Roman, bolded) and type size (12 points). For text entries, the term “format” refers to the typeface, size, text color, and cell alignment used to display the text. Let’s change the font of the text that was entered to Times New Roman, 12 points, bold. First, select the range A1:A3. Now, on the Home tab, click on the Font list so that the font choices are displayed and then select Times New Roman from the list. Next, click the Bold button and then choose 12 from the font size list. Notice that as you scroll through the Font and Size lists, the selected text is displayed as will look on the worksheet. This is known as Live Preview, and it works for many, but not all, of the formatting features in Excel 2016. Because none of these changes actually take effect until you validate them by clicking, you can scroll through the choices until the text looks exactly right. You can also make these changes by right-clicking the selected cells and choosing Format Cells… from the menu. The choices that we made can be found on the Font tab. We can just as easily change the font for numbers. Suppose that we want to change the years in cells A4:F4 to 12-point italic Times New Roman. First select the range A4:F4. Select the proper attributes from the Home tab, or right-click and choose Format Cells. Note that this change could also have been made at the same time as the text was changed, or you could now press Ctrl+Y to repeat the last action. You could also add the Repeat button to the Quick Access toolbar. Just click arrow at the right of the Quick Access toolbar and choose More Commands…. Now select the Repeat button and then click the Add button in the dialog box. Our worksheet is now beginning to take on a nicer look, but it still isn’t quite right. We are used to seeing titles nicely centered over the table, but our title is way over at the left. We can remedy this by using Excel’s alignment options. Excel provides for seven different horizontal alignments within a cell. We can have the text (or numbers) aligned with the left or right sides of the cell or centered within the cell boundaries. Excel also allows centering text across a range of cells. Let’s change the alignment of our year numbers first. Highlight cells A4:F4 and then click the Center button in the Alignment section of the Home tab. Notice that the numbers are all centered within their respective cells. Next, we will center our table title across the whole range of numbers that we have entered. To do this, select the entire range across which we want to center our titles. Highlight cells A1:F3 and select Format Cells from the right-click menu. Click on the Alignment tab and then select “Center across selection” from the Horizontal alignment list. Click on the OK button and notice that the titles are indeed centered across columns A to F.
  • 38. 13 Navigating the Worksheet Be aware that there is also a button on the Home tab that will “Merge and Center” the selected cells. This button will have the appearance of doing the same thing as “Center across selection,” but it doesn’t. In addition to centering the text, it also merges all of the selected cells into one big cell that spans multiple columns and/or rows. In the process of merging cells, all data that isn’t in the upper-left cell will be lost. Furthermore, merged cells make it difficult to select, sort, or filter a range. Generally speaking, it is better not to use the Merge and Center button. If needed, there is an Unmerge Cells command in the same button. Formatting Numbers Aside from changing the typeface and type size, when dealing with numbers we can also change their appearance by adding commas and dollar signs and by altering the number of decimal places displayed. Furthermore, we can make the numbers appear differently depending on whether they are positive or negative. For example, we might want negative numbers to be red in color and displayed in parentheses rather than using the negative sign. You can also experiment with designing custom number formats, but for now we will stick to the more common predefined formats. Microsoft is a large company, and its sales have ranged from nearly $70 billion to over $93 billion during 2011 to 2016. Numbers this large can be difficult to read unless they are written with commas separating every third digit. Let’s format our sales numbers so that they are easier to read. Select the range of sales numbers (A5:F5) and choose Format Cells from the right-click menu, and then click on the Number tab. You are presented with the Number Format dialog box that contains a list of formatting categories. For now, select Number from the Category list. This will give you the option to choose the number of decimal places displayed, choose whether or not to use a 1000 separator, and select the format of negative numbers. We want to display the sales numbers with commas separating every third digit and two decimal places, so change the decimal places to 2 and check the box to add a 1000 separator.4 Click on the OK button and notice that the numbers are now displayed in a more readable format. You could accomplish almost exactly the same format by clicking the Comma Style button on the Ribbon (there is a slight alignment difference between the two methods—you cannot center numbers formatted with the comma style). We have made several formatting changes to the Microsoft Sales worksheet and your’s should look like the one in Exhibit 1-2. All of this formatting may seem tedious at the moment, but it will become easy as you get more familiar with the choices. Furthermore, the payoff will be worth far more than a few seconds spent formatting the worksheet. 4. In the U.S. we use a comma as the 1000 separator. In many other countries a decimal point is used instead. Excel determines which to use based on settings in the Windows Control Panel.
  • 39. CHAPTER 1: Introduction to Excel 2016 14 EXHIBIT 1-2 ORIGINAL WORKSHEET REFORMATTED Adding Borders and Shading Text formatting is not the only design element available in Excel. We can also liven up worksheets by placing borders around cells and shading them. In your worksheet, select A4:F4 (the years). Right-click the selection and choose Format Cells, and then select the Border tab from the dialog box. There are 13 different line styles that can be applied, and you can change the color of the lines. Click on the thick solid line (fifth down on the right side) and then click on both of the top and bottom lines in the sample view. Click the OK button to see the change. Next, with A4:F4 still selected, we will add shading. As before, choose Format Cells from the menu, but this time select the Fill tab. This tab allows you to set the background color and pattern of the cells. Click on a light gray color and then press the OK button. Now, to make the numbers more readable, make them bold. Your worksheet should now look like the one in Exhibit 1-3. EXHIBIT 1-3 THE WORKSHEET WITH BORDERS AND SHADING Entering Formulas So far, we haven’t done anything that couldn’t just as easily be done in a table in Microsoft Word. The real power of spreadsheets becomes obvious when formulas are used. Formulas will enable us to convert the data that we have entered into useful information. At the moment, our sample worksheet contains only sales data for Microsoft. Suppose, however, that we are interested in performing a simple analysis of the profitability of Microsoft over the 2011 to 2016 time period. In this case, we would also need to see the net
  • 40. 15 Entering Formulas income for each of the years under study. Let’s make some modifications to the worksheet to make it more useful. Add the data from Table 1-2 to the sample worksheet in cells A6:F6, immediately below the sales data, and apply the same formatting. Now, we have a couple of problems. The title of our worksheet, in cell A1, is no longer accurate. We are now putting together a profitability analysis, so we should change the title to reflect this change of focus. Select cell A1 (even though the title is centered across A1:F1, Excel still keeps the data in A1) by clicking on it. Notice that the text appears in the right hand side of the formula bar. To edit the title, click on the formula bar just to the right of the word “Sales.” Backspace over the word “Sales” and then type: Profitability Analysis, and press Enter to accept the change. Our only remaining problem is that the data in the worksheet are not clearly identified. Ideally, we would like to have the data labeled in the column just to the left of the first data point. But, there is no column to the left of the data! There are several ways to overcome this problem. The easiest is to simply insert a column to the left of column A. To accomplish this, select column A entirely by clicking on the column header where it has an “A.” Notice that the whole column is highlighted (we can do this with rows as well). Now, click the Insert button on the Home tab and choose Insert Sheet Columns. The new column is magically inserted, and all of our data have been moved one column to the right. In cell A5, type: Sales and in A6 type: Net Income. If you are following the examples exactly, the words “Net Income” probably do not fit exactly into A6. Instead, part of the text is cut off so as not to overflow onto the data in B6. We can easily remedy this by changing the width of column A. Click the Format button on the Home tab and choose Column Width. In the edit box type: 20 and press the Enter key. Column A should now be wide enough to hold the text that we have added and will add later. We can now proceed with our profitability analysis. Because of the change in sales over the years, it isn’t immediately clear from the data whether Microsoft’s profitability has TABLE 1-2 MICROSOFT NET INCOME 2011 TO 2016 Year Net Income 2016 16,798.00 2015 12,193.00 2014 22,074.00 2013 21,863.00 2012 16,978.00 2011 23,150.00
  • 41. CHAPTER 1: Introduction to Excel 2016 16 improved or not, as net income has varied as well. In this type of situation, it is often preferable to look at net income as a percentage of sales (the net profit margin) instead of dollar net income. Thankfully, we don’t have to type in more data to do this. Instead, we can let Excel calculate these percentages for us. All we need to do is to enter the formulas. Formulas in Excel are based on cell addresses. To add two cells together, we simply tell Excel to take the contents of the first cell and add it to the contents of the second. The result of the formula will be placed in the cell in which the formula is entered. In our problem, we need to find net income as a percentage of sales. We will do this first for 2016. Before entering our first formula, we should insert a label identifying the data. In cell A7, type: Net Profit Margin. Change the active cell to B7 where we want to place the result of the calculation. The problem that we want to solve is to take the number in cell B6 (net income) and divide it by the number in B5 (sales). In Excel, division is represented by the forward slash (/), so in B7 type: =B6/B5. The equals sign must precede all formulas in Excel, otherwise it will treat the formula as text and will not calculate the result. Press the Enter key to calculate the result of the formula. You should get 0.1969 as the result. In this example, we typed the formula directly into the cell because the small size of our worksheet made it easy to know what cells we wanted to use in the formula. In many instances, this is not the case. In more complicated worksheets, it is usually easier to use pointer mode to enter formulas. In pointer mode, we use the mouse to point to the cells that we want to be included, and Excel inserts them into the formula. Move to C7 and we will enter the formula using pointer mode. First, type = to place Excel in edit mode. Now, instead of typing C6, click on C6 with the mouse. Notice that C6 appears in the formula bar to the right of the equals sign. Press the forward slash key to indicate division and then click on C5. In the formula bar you should see the formula “=C6/C5.” Press the Enter key to calculate the result of the formula. The result should be 0.1303. Let’s change the format of these cells so that they are easier to read. In this case, it would be nice to see them in percentage format with two decimal places. First, highlight cells B7:C7. Right-click and choose Format Cells, and click on the Number tab. From the Category list, click on Percentage and then set the Decimal places to 2. Press the Enter key or click the OK button. You could also apply this format by using the Percent Style button on the Ribbon. To get two decimal places, you would then need to click the Increase Decimal button in the same group. Figure 1-7 shows these and other formatting icons. FIGURE 1-7 NUMBER FORMATTING ICONS
  • 42. 17 Entering Formulas Copying and Moving Formulas We have now calculated the net profit margin for 2016 and 2015, but that still leaves four years for which we need to enter formulas. Repeatedly typing essentially the same formula can get tedious. Fortunately, we can simply copy the formula, and Excel will update the cell addresses to maintain the same relative relationships. For example, we know that for 2014 the formula should read “=D6/D5.” If we copy the formula from C7 to D7, Excel will change the formula from “=C6/C5” to “=D6/D5” automatically. This works because Excel treats all cell references as relative. When you typed the formula in cell B7 (=B6/B5), Excel read that as “take the contents of the cell that is one row above the current cell and divide that by the contents of the cell that is two rows above the current cell.” When copying formulas, Excel maintains the same relative cell relationships so that the formulas are updated. When we copy to the left or right, Excel updates the columns in the formulas. When we copy up or down, Excel changes the rows. To change this behavior, we use absolute references instead. An absolute reference always refers to the same cell, no matter where you copy it. To create an absolute reference, type dollar signs before the column letter and row number. For example, $B$6 will always refer to cell B6. The “$” tells Excel to not change the reference. We can also create mixed references. In a mixed reference only the column or row remains constant, not both. For example, $B6 is a mixed reference (column absolute, row relative). If the formula is copied down, it will change to $B7, but if it is copied across it will still be $B6. On the other hand, B$6 (column relative, row absolute) will still be B$6 if copied down, but will change to C$6 if copied across. We will make heavy use of absolute and mixed references in later chapters. Note that you can use the F4 key (a-T on a Mac) to cycle through every possible reference type. Simply enter a cell address and repeatedly press F4 until you get the type of reference you need (e.g., $B$6, B$6, $B6, or B6). Rather than retyping the formula for our other cells, let’s simply copy from C7. First, select C7 and then click the Copy button (or Ctrl-C) on the Ribbon. Now highlight cells D7:G7 and click the Paste button. At this point, your worksheet should closely resemble the one in Exhibit 1-4. EXHIBIT 1-4 A PROFITABILITY ANALYSIS FOR MICROSOFT
  • 43. CHAPTER 1: Introduction to Excel 2016 18 We can see from Exhibit 1-4 that Microsoft’s net profit margin has varied somewhat over this period, but the margins are quite high compared to those of many other companies. In addition to copying formulas (which maintains the relative cell references), they can also be moved. Moving a formula to a different cell has no effect on the cell references. For example, we could move the formula in B7 (=B6/B5) to B8. To do this, select B7 and then click the Cut button. Next, select B8 and then click Paste. Notice that the result in B8 is exactly the same as B7 because the formula is unchanged. Now click the Undo button on the Quick Access toolbar to return the formula to B7. Formulas (or anything else) may also be moved with the mouse. Simply select the cells containing the data that you want to move, position the mouse pointer at the edge of the cell so that it changes to an arrow, and then click the left mouse button and drag the cell to its new location. Now move the formula back to B7. The worksheet should again resemble the one pictured in Exhibit 1-4. Mathematical Operators Aside from division, which we have already seen, there are four additional primary mathematical operations: addition, subtraction, multiplication, and exponentiation. Table 1-3 summarizes the five basic operations and the result that you should get from entering the example formula into cell B8. Parentheses and the Order of Operations Using the mathematical operators provided by Excel is straightforward in most instances. However, there are times when it gets a bit complicated. For example, let’s calculate the rates of growth of Microsoft’s sales and net income. To calculate the growth rates, we usually want the compound annual growth rate (CAGR, which is also known as the geometric mean growth rate) rather than the arithmetic average growth rate. TABLE 1-3 MATHEMATICAL OPERATIONS Operation Key Formula Result in B8 Addition + =B5+B6 99,712 Subtraction – =B5–B6 55,986 Multiplication * =B5*B7 21,863 Division / =B6/B7 77,849 Exponentiation ^ =15^2 225
  • 44. 19 Entering Formulas The equation for the CAGR is: (1-1) where N is the count of the numbers in the series, Sales0 is the first number in the series (2011 sales in our example), and SalesN is the last number in the series (2016 sales). Translating this equation into Excel is not as simple as it may at first appear. Doing this correctly requires knowledge of operator precedence. In other words, Excel doesn’t necessarily evaluate formulas from left to right. Instead, some operations are performed before others. Exponentiation is usually performed first. Multiplication and division are usually performed next, but they are considered equal in precedence, so any multiplication and division are evaluated from left to right. Finally, addition and subtraction are evaluated and they are also considered equal in precedence to each other. These are the same rules that you learned in your first algebra class. We can modify the order of operations by using parentheses. Operations enclosed in parentheses are always evaluated first. As a simple example, how would you evaluate the following expression? Is X equal to 2 or 3.33? Algebraically, X is equal to 3.33 because the division should be performed before the addition as Excel would do. If the answer we were seeking was 2, we could rewrite the expression using parentheses to clarify: The parentheses clearly indicate that the addition should be performed first, so the answer is 2. When in doubt, always use parentheses because using them unnecessarily will not cause any problems. To calculate the compound annual growth rate of sales, move to cell A8 and type: Sales Growth. Now, enter the following into B8 using equation (1-1): =(B5/G5)^(1/5)-1. Pressing the Enter key will reveal that the growth rate of sales for the five-year period was 4.05% per year (you may have to reformat the cell to display as a percentage with two decimal places). To determine the average growth rate of net income, type: Net Income Growth into A9, and then copy the formula from B8 to B9. You should find that the compound annual rate of growth of net income has been −6.21% per year and that the formula in B9 is: =(B6/ G6)^(1/5)-1. Notice how the row references were updated when you copied the formula down. CAGR SalesN Sales0 ---------------- - N 1 – ( ) 1 – SalesN Sales0 ---------------- - ⎝ ⎠ ⎛ ⎞ 1 N 1 – ( ) ----------------- 1 – = = X 2 4 3 ⁄ + = X 2 4 + ( ) 3 ⁄ =
  • 45. CHAPTER 1: Introduction to Excel 2016 20 Using Excel’s Built-In Functions We could build some pretty impressive worksheets with the techniques that we have examined so far. But why should we have to build all of our formulas from scratch, especially when some of them can be quite complex and therefore error-prone? Excel comes with hundreds of built-in functions, and more than 50 of them are financial functions. These functions are ready to go; all they need is for you to supply cell references as inputs. We will be demonstrating the use of many of these functions throughout the book, but for now let’s redo our growth rate calculations using the built-in functions. Because we want to know the compound annual rate of growth, we can use Excel’s built-in GEOMEAN function.5 To use this function the syntax is: =GEOMEAN(NUMBER1, NUMBER2, …) The GEOMEAN function takes up to 255 cell addresses (or ranges) separated by commas. As is usual in Excel, we can also supply a range of cells rather than specifying the cells individually. Remember, we want to find the geometric mean rate of growth of sales (i.e., CAGR), not the geometric mean of the dollar amount of sales. Because the GEOMEAN function simply calculates the N th root of the product of the inputs, we need to redefine our inputs (we used the dollar amount of sales in our custom-built formula). Let’s add a row of percentage changes in sales to our worksheet (this is called a helper row). Move to A10 and enter the label: % Change in Sales, then select B10 and enter the formula: =B5/C5-1. The result in B10 should be −0.0883, indicating that sales decreased by 8.83% from 2015 to 2016. Now copy the formula from B10 to each cell in the C10:F10 range. Note that we don’t copy the formula into G10 because that would cause an error since H10 doesn’t contain any data (try it, and you will see #DIV/0! in G10, meaning that your formula tried to divide by zero). Now, to calculate the compound average annual rate of sales growth, we need to enter the GEOMEAN function into B11: =GEOMEAN(B10:F10). Because our data points are in one contiguous range, we chose to specify the range rather than each individual cell. Let’s also supply a label so that when we come back later we can recall what this cell represents. Move to A11 and enter: Sales Growth. Have you noticed any problems with the result of the GEOMEAN function? The result was a #NUM! error, rather than the 4.05% that we got when using our custom formula. Either our custom formula is incorrect or we have misused the GEOMEAN function. 5. We could calculate the arithmetic mean using the AVERAGE function, but this would ignore the compounding and overstate the true average growth rate. This function is defined as =AVERAGE(NUMBER1, NUMBER2, . . .).
  • 46. 21 Using Excel’s Built-In Functions Actually, this type of error is common and easily overlooked. What has happened is that when using the GEOMEAN function, we didn’t fully understand what goes on behind the scenes. GEOMEAN simply takes the N th root of the product of the numbers. That single negative number has caused the entire product to be negative, and you can’t calculate a root of a negative number. What we should have done is calculated the geometric mean of the price relative changes (i.e., one plus the percentage change). To correct the error, replace the formula in B10 with: =B5/C5 and copy it to the other cells. Now replace the formula in B11 with: =GEOMEAN(B10:F10)-1. The result is 4.05%, exactly the same as our previous result. To avoid errors like this one, you must absolutely understand what the built-in formula is doing. Never blindly accept results just because Excel has calculated them for you. There is an old saying in computer science: “garbage in, garbage out.” At this point, your worksheet should closely resemble the one pictured in Exhibit 1-5. EXHIBIT 1-5 ANALYSIS OF MICROSOFT’S GROWTH RATES Using the Insert Function Dialog Box With the hundreds of built-in functions available in Excel, it can be difficult to remember the name of the one that you want to use or the order of the arguments. To help you with this problem, Excel provides the Insert Function dialog box, a series of dialog boxes that guide you through the process of selecting and entering a built-in formula. Let’s use Insert Function to insert the GEOMEAN function into B11. First, select cell B11 and then clear the current formula by clicking the Clear button on the Home tab and then choosing Clear Contents (or, press the Delete key on the keyboard). Click the Insert Function button on the Formulas tab to launch the first Insert Function dialog box. In the first dialog box click on Statistical in the “Or select a category” list. The “Select a function” list will now contain all of the built-in statistical functions. Scroll down this list
  • 47. CHAPTER 1: Introduction to Excel 2016 22 and click on GEOMEAN. Notice that there is a definition of the function at the bottom of the dialog box. Click OK to go to the next dialog box, which is pictured in Figure 1-8.6 In the Function Arguments dialog box, you will see prompts and definitions for each of the inputs to the selected function. Click and drag the mouse over the B10:F10 range. This range will appear in the “Number 1” edit box. Click on the OK button to have the function entered. The result is 104.05%, not the 4.05% that we expected. We need to subtract 1 from the result of the function, so click in the Formula bar and type -1 after the GEOMEAN function and then press Enter. The formula in B11 should be: =GEOMEAN(B10:F10)-1. Note that the 1 that we are subtracting represents 100% of the starting value. FIGURE 1-8 THE EXCEL 2016 FUNCTION ARGUMENTS DIALOG BOX Insert Function is an easy way to discover new functions and to use familiar ones. You can also find functions by using the function category buttons on the Formulas tab. Choosing a function from one of those lists will lead to the same Function Arguments dialog box. However you get there, using it will make Excel much easier for you to learn and use. If you know the name of the function that you need, you can skip the Insert Function dialog box. Just type = and then start typing the function name or any part of the name. Excel will automatically create a Formula AutoComplete menu listing functions that match what you have typed. Figure 1-9 shows the result from typing =ge in a cell. You could also type =mean or any other part of the function name to get a similar list. When you see the function name that you want, you can use the arrow keys to select it and then press the Tab key to begin entering the arguments. As you enter the function arguments, you will see a ToolTip that reminds you of their order. 6. Note that this dialog box frequently blocks your work. You can click and drag it out of the way.
  • 48. 23 Using Excel’s Built-In Functions FIGURE 1-9 FORMULA AUTOCOMPLETE “Dot Functions” in Excel 2016 In Excel 2010, Microsoft introduced a new naming convention for some functions. The new functions contain a “dot” in their names. For example, the STDEV.S function calculates a sample standard deviation and is identical to the STDEV function that has been in all earlier versions of Excel. In this case, the new naming convention is meant to more clearly convey the purpose of the function. In other cases, a dot function uses a new algorithm to calculate more precise results. In all cases, the older versions of the functions are available for compatibility with older versions of Excel. If a file is created using the dot functions in Excel 2016 and then opened in Excel 2007 or earlier, the result will be a #NAME! error. That happens because older versions aren’t aware of the existence of new functions. If a worksheet that you create may be used on older versions of Excel, you should run the Compatibility Checker before saving the file. This will warn of compatibility problems, including the use of the new dot functions. To use the Compatibility Checker, click the File tab and then Info. Click the Check for Issues button and then choose Check Compatibility. This will launch a dialog box like that shown in Figure 1-10, which is showing that there is a potential problem in Sheet1 of the workbook due to the use of functions that are incompatible with versions from Excel 97 to Excel 2007. Note that the dialog box shows the number of occurrences of each problem and the sheet on which they are located. If there is only one problem, then clicking the Find link will take you to that cell. If there is more than one problem, then the easiest way to find them is by clicking the Copy to New Sheet button. This will create a new worksheet with a report that identifies each cell with a problem, including a hyperlink that will take you straight to that cell.
  • 49. CHAPTER 1: Introduction to Excel 2016 24 FIGURE 1-10 THE COMPATIBILITY CHECKER Using User-Defined Functions There are times when you need to calculate a complex formula and Excel doesn’t have a built-in function that will do the job. In this case, you can either type the formula into a cell (which can be very tedious) or use a user-defined function. A user-defined function is similar to a built-in function, except that it was created by somebody other than the Excel development team at Microsoft. User-defined functions can be purchased, downloaded from the Internet, or created on your own. Writing them in Excel’s macro language (Visual Basic for Applications, see Chapter 15) is beyond the scope of this chapter, but we have included several functions in the Famefncs.xlam file, which can be found on the official Web site for this book.7 Download the file and save it in an easy-to-remember location. These functions will be used occasionally throughout the book, especially in later chapters. Before using a user-defined function you must open Famefncs.xlam. This file is a special type of Excel file known as an add-in. An add-in can be opened just like any other Excel file, or it can be set to open automatically every time you start Excel. To make the functions in this file available at all times, click the File tab and then Options. Click Add-ins and then choose Excel Add-ins from the Manage list and click the Go button. This will open the Add- ins dialog box as pictured in Figure 1-11. If you have enabled the Developer tab, then you can also click the Excel Add-ins button located in the Add-ins group. 7. In Excel 2007 and later, file names with extensions that are .xlsm or .xlam contain macros. These files may require special security settings before Excel will allow the macros to run. Go to the File tab, then Options, and set up your Trusted Locations in the Trust Center. You may still receive warnings for some files, but if you are sure that they are safe then allow the macros to run.
  • 50. 25 Using Excel’s Built-In Functions FIGURE 1-11 THE ADD-INS DIALOG BOX Click the Browse button, navigate to where you saved the file, and choose Famefncs.xlam. It will be added to the Add-ins dialog box as shown above, and the functions in the file will now be available to use in all of your workbooks. If you can’t access the functions, be sure that you saved the file in one of your trusted locations as mentioned in footnote 7. Using a user-defined function is almost exactly the same as using a built-in function. The only difference is that the file containing the functions must be opened in order for the functions to be known to Excel. You can even use the Insert Function dialog box (select the User Defined function category, which is only available when user-defined functions are installed). As an example of the use of user-defined functions, we have created one to calculate the compound average annual rate of growth of sales from the dollar amounts instead of the price relatives that we used earlier. The function is defined as:8 FAME_CAGR(SALES) FAME_CAGR is the name of the function, and SALES is the required range of cells that contain the sales figures. The function automatically calculates the formula given in equation (1-1) on page 19. Now, in your original worksheet, select cell B12 and then bring up the Insert Function dialog box. Choose the User Defined category to display the list of functions that were supplied 8. This function was written specifically to calculate a compound average growth rate from dollar values. It does not duplicate Excel’s GEOMEAN function, so do not use it in place of that function.
  • 51. CHAPTER 1: Introduction to Excel 2016 26 with this book. In the “Select a function” list, select FAME_CAGR and then click the OK button. In the edit box for Sales enter B5:G5, which is the range that contains Microsoft’s sales. Click on the OK button and see that the answer is exactly the same as before. The function in B12 is: =FAME_CAGR(B5:G5). We will use more of the user-defined functions from this add-in in later chapters. Creating Graphics In our simple profitability analysis, it is obvious that Microsoft’s profit margins have been somewhat volatile over the past six years. Many times, you will build much more complicated worksheets where the key trends are not so easy to spot, especially by others who haven’t spent as much time with the data. You may also find that you need to give a presentation, perhaps to a group of investors to convince them to invest in your firm. In cases such as these, tables full of numbers may actually obscure your point. People (and students too!) tend to get a glazed look in their eyes when examining tables of numbers. The solution to this problem is to present a chart of the numbers to illustrate your point. Fortunately, high-quality graphics are a snap with Excel. There are three ways that charts can be created in Excel: in separate chart sheets, embedded in the worksheet, or as in-cell charts known as Sparklines. We will cover each of these methods in turn. Creating Charts in a Chart Sheet When you want to focus only on a chart, then it is best to create it in its own chart sheet. We can create a chart separate from the worksheet by selecting the data and inserting a new chart sheet. Let’s try creating a graph of Sales versus Net Income for Microsoft. First select the data in the A4:G6 range and then right-click the tab for the current worksheet. From the menu that appears, choose Insert. You will now be presented with a list of different file types from which to select. Because we want to create a chart, select Chart from the list and press Enter or click OK. A chart sheet will open with your data displayed automatically in a Column chart. It will have a default chart title, no axis titles, and will require a few other enhancements. Note that you now have two additional tabs in the Ribbon (Design and Format) that are specific to working with charts. These are known as contextual tabs because they only appear when editing a chart. If you want another type of chart, click the Change Chart Type button on the Design tab.
  • 52. 27 Creating Graphics Let’s begin to fix our chart by adding a title. Select the chart and then click the Chart Elements button that appears near the upper-right corner of the chart (Microsoft calls these buttons the Proximal UI). Click the Chart Title item and choose the Centered Overlay option. In the text box that appears, type: Microsoft Sales vs. Net Income and then click outside the box to lock in the title. EXHIBIT 1-6 A STAND-ALONE CHART You will follow a similar procedure for the axis titles. Click the Axis Titles item in the Chart Elements button to insert both the x and y axis titles. For the x-axis double click the “Axis Text” label and then type: Years, and for the y-axis type: Millions of Dollars for the title. Your chart should now resemble the one in Exhibit 1-6. We will see how to fix the reversed x-axis after the next section. Creating Embedded Charts You may want to create a chart that will be saved and displayed within the worksheet itself. Such a chart is referred to as an “embedded chart” because it appears within the worksheet. Unlike a separate chart sheet, embedded charts can be displayed and printed on the same page as the worksheet data. If necessary, embedded charts can be printed separately from the worksheet. To create an embedded chart, first switch to your worksheet. Now select A4:G6 as before and then click the Insert tab. Click the Column button in the Charts group and then choose the first type listed under 2-D Column. The chart will appear in the middle of your worksheet. To resize the chart, click and drag any of the selection boxes on its perimeter. To move the chart, click on a blank area inside the chart and drag it to wherever you want it to be. If you hold down the Alt button (a on Mac) while dragging or resizing the chart, it will snap to the gridlines. Your worksheet should now resemble the one in Exhibit 1-7, except for some minor formatting changes. Enter the chart and axis titles exactly as before.
  • 53. CHAPTER 1: Introduction to Excel 2016 28 EXHIBIT 1-7 A WORKSHEET WITH AN EMBEDDED CHART Note that you can move your embedded chart into a separate chart sheet and vice versa. Just right-click in the chart and choose Move Chart from the shortcut menu. There is also a Move Chart button on the Design tab. You can even move your chart to a different worksheet in this way. Formatting Charts We have now created a basic chart of Sales versus Net Income, but it probably isn’t quite what you expected. First, we normally expect that the most recent data in a chart is on the right side and the oldest on the left. Because we have created our worksheet data in the opposite direction (a common convention), our chart is backward and a quick glance might suggest that sales and profits have been declining. In Excel, every element of a chart is treated as a separate “object.” This means that each element can be selected and edited separately from the other elements. In addition, these chart objects are somewhat intelligent. They “know” what actions can be performed on them and will present a menu of these actions if you right-click on them. The major objects in any chart include each data series, the plot area, the gridlines, the axes, each axis title, the chart title, and any text boxes entered into the chart. To select an object, all that you need to do is to click on it. Once the object is selected, it will have small squares (selection handles)
  • 54. 29 Creating Graphics surrounding it. In some cases this will result in the selection of multiple items (e.g., the entire data series, or the entire legend), but you can often narrow the selection with a second click (not a double-click). With this knowledge, let’s edit our chart. First, we want to turn the x-axis around so that the data are presented in the order that we normally expect. Right-click on the x-axis (or the axis labels) to show the shortcut menu. Once the menu appears, choose Format Axis. This will launch the Format Axis panel on the right side of the window. Under Axis Options, choose the Date Axis type so that Excel understands that our year numbers are dates. It will flip the axis so that it reads left to right as we would expect. If we had entered full dates in the heading (e.g., 6/30/2016), then Excel would have recognized the dates and created a date axis that we wouldn’t need to flip. We could also flip the axis by selecting “Categories in reverse order” from the same panel. This will reverse the x-axis, but also move the y-axis to the right side of the chart. If that isn’t what you want, click on “At maximum category” in the same dialog box to move the y-axis back to the left side. This method is best used when your x-axis labels are text. If they are dates, then the previous method is better. Now suppose that we wanted to change the chart title so that it shows the years that are covered by the data. Simply click on the chart title to select it, then click at the end of the title. You could begin typing immediately, but we want to put the new text on a second line. Press Enter to begin a new line and then type: 2011 to 2016 and press the Esc key or click anywhere else on the chart. You may need to resize the font to make the title fit. Next, let’s move the legend to the bottom of the chart to see if it looks better there. Right- click on the legend and choose Format Legend from the shortcut menu. Select Bottom from the choices presented. Close the Format Legend panel and return to the chart. If things don’t look quite right, click in the plot area to select it and drag the selection handles until the plot area is the proper size. Your worksheet should now resemble the one in Exhibit 1-8. Changing the Chart Type Excel offers many different types of charts: everything from the column chart that we have created to Box and Whisker charts and Waterfall charts. Some of these chart types are very sophisticated. Despite potential complexities, changing the chart type is very simple. Let’s assume that we would prefer to see the data in our chart presented as two lines, rather than as columns. To make this change, right-click anywhere inside the chart and choose Change Chart Type from the menu (or the button on the Design tab). Select a type of Line chart and click OK. The chart is now displayed as a line chart. You can even change the type of an individual data series. For example, you might want to see Sales as a Column chart and Net Income as a Line on the same chart. Give it a try. Right-click on the Sales data series, choose “Change Series Chart Type…,” and change the chart type to Clustered Column.
  • 55. Other documents randomly have different content
  • 56. thoughtless act you young people have done. There is no hope of turning Mr. Manners, you say. Yet you are a lady, well mannered, well spoken, well educated; and he sprang from nothing. It is well known. But it is idle to talk in this fashion. There is a stubbornness on the part of the ignorant which is worse than the pride of those who can boast of high descent. The self-made man is often the most difficult animal to deal with. Your husband could not have contemplated the cost of what he was about to do." "He thought only of one thing, uncle--that he loved me." "And that is to serve as a set-off against all the ills of life. I hope it may prove so. The commencement does not hold out any great promise, that's plain. And now, Nansie, tell me the rest in your own way. I have got the nut of the story, and a precious hard one it is to crack." "When my dear father died," said Nansie, "Kingsley was in London. Mr. Manners had just returned from Russia, and it was the first opportunity Kingsley had of making him acquainted with our marriage. I think that Kingsley, out of consideration for me, has not told me everything that passed between him and his father, but I know that Mr. Manners extracted a promise from him to remain at home for a week before he decided." "Decided upon what?" asked Mr. Loveday, abruptly. "I do not know, uncle; Kingsley has been so worried and troubled that it would have been unkind for me to press him upon points which really matter very little. For, after all, Kingsley came back to me when I called him, and is true and faithful." "His father perhaps pressed him to desert you and break your heart. Rich as the self-made man is, he could not divorce you. And your husband consented to remain a week in his father's house to consider it! That looks ugly."
  • 57. "Kingsley did nothing wrong. He hoped by remaining near his father that a favorable moment might come when he could successfully appeal to him to deal more tenderly towards us. There was also the chance of his mother's mediation." "Ah, there is a mother. I was going to ask about her." "Mr. Manners is master of everything and everybody. His lightest word is law. Before the week was ended Kingsley received my letter with news of my dear father's death. Where was Kingsley's place then, uncle?" "By your side." "He came at once without a single hour's delay. He asked his father to release him from his promise, and as Mr. Manners would not do so, he broke it--out of love for me. This, I think, embittered Mr. Manners more strongly against us, and he turned Kingsley from the house. I hope you are beginning to do Kingsley justice, uncle." "He seems to have acted well. But go on." "After my father was buried, Kingsley and I were naturally very anxious as to how we should live. Kingsley had a little property, but he owed money to tradesmen, which had to be paid. The settlement of these accounts swallowed up nearly every sovereign he possessed, and we had a hard fight before us, harder, indeed, than we imagined. I must tell you that Kingsley wrote to his parents without success. His father returned his letter without one word of acknowledgment. If I had thought I could do any good I would have gone to his mother, but I felt that it would only make matters worse, if they could be worse. What could I have expected from her but reproaches for separating her from her son? For I am the cause of that. If Kingsley had never seen me he would have been at peace with his parents, carrying out his father's desire that he should become a member of Parliament, and take a part in public affairs. Kingsley is fitted for it, indeed he is. He talks most beautifully. And I
  • 58. have spoiled it all, and have ruined a great career. I would not dare to say so to Kingsley; he would never forgive me for it. He tried hard to get some sort of work to do; he went out day after day, and used to return home so sad and wearied that it almost broke my heart to see him." "With but a little store of money," said Mr. Loveday, "such a state of affairs must soon come to an end." "We held out as long as we could; longer, indeed, than I thought possible. We parted with many little treasures--" "And all this time you never wrote to me!" exclaimed Mr. Loveday. "Remember, uncle, that I had written to you and that you had not sent a line of congratulation upon our marriage." "A nice thing to congratulate you upon! But I was to blame, I admit it." "It was a delicate matter to Kingsley. 'Your uncle doesn't care to know me,' he said; and so it seemed. At length, uncle, we came to a great block, and we truly despaired. But there was a break in the clouds, uncle." "Good." "I am speaking of yesterday. A letter arrived for Kingsley from a friend to whom he had written, saying that a gentleman who intended to remain abroad for three or four months required a kind of secretary and companion, and that Kingsley could secure the situation if he cared for it. The gentleman was in Paris, and the letter contained a pass to Paris, dated yesterday. We had come to our last shilling, uncle, and this separation--I hope and trust not for long-- was forced upon us. Kingsley managed to raise a little money, a very little, uncle, just enough to defray his expenses to Paris and to leave me a few shillings. So last evening, when we parted, it was agreed
  • 59. that I should come to London to-day, and appeal to you to give me shelter till Kingsley's return. That is all, uncle. Will you?" "Yes, Nansie," said Mr. Loveday, "I will keep the promise I made to my dead brother." Nansie took his hand and kissed it, and then burst into tears.
  • 60. CHAPTER XX. From that day a new life commenced for Mr. Loveday. It was not that there was any great improvement in the ordinary domestic arrangements of his modest establishment, because the reign of Timothy had introduced beneficial changes in this respect before Nansie was made queen. It was more in its spiritual than its material aspect that the new life was made manifest. To have a lady moving quietly about the house, to be greeted by a smile and a kind glance whenever he turned towards her, to hear her gentle voice addressing him without invitation on his part--all this was not only new, but wonderful and delightful. Mr. Loveday very soon discovered that Nansie was indeed a lady, and far above the worldly station to which her circumstances relegated her; it was an agreeable discovery, and he appreciated it keenly. He found himself listening with pleasure to her soft footfall on the stairs or in the rooms above, and he would even grow nervous if any length of time elapsed without evidence of her presence in the house. Perhaps Nansie's crowning virtue was her unobtrusiveness. Everything she did was done quietly, without the least fuss or noise; no slamming of doors to jar the nerves, nothing to disturb or worry. "Where did you learn it all, Nansie?" asked Mr. Loveday. "It is what all women do," she replied. He did not dispute with her, although his experience was not favorable to her view. Inwardly he said: "What all women could not do, if they tried ever so hard, but then Nansie had perfection for a mother." His thoughts travelled frequently now to the early days when he loved the woman who was not to become his wife, and it
  • 61. may be that he accepted Nansie's companionship and presence as in some sense a recompense for his youthful disappointment, a meting out of poetical justice, as it were. Of all the hours of day and night the evening hours were the most delightful, not only to him, but to Timothy, between whom and Nansie there swiftly grew a bond of sympathy and friendship. Before Nansie's appearance Mr. Loveday's house was a comfortable one to live and work in; but from the day she first set foot in it, it became a home. Neither Timothy nor Mr. Loveday could have given an intelligible explanation of the nature of the change; but they accepted it in wonder and gratitude. Everything was the same and yet not the same. There was no addition to the furniture; but it appeared to be altogether different furniture from that to which they had been accustomed. It was brighter, cleaner, and in its new and improved arrangement acquired a new value. There were now white curtains to the windows, and the windows themselves were not coated with dust. The fireplaces were always trim and well brushed up, the fires bright and twinkling, the candlesticks and all the metalwork smartly polished, the table-linen white and clean, clothes with never a button missing, socks and stockings with never a hole in them. Nansie could have accomplished all these things unaided; but Timothy was so anxious to be employed that she would not pain him by refusing his assistance. She had another reason--a reason which she did not disclose, and which Mr. Loveday and Timothy were too inexperienced to suspect--for accepting the lad's willing service. She knew that a time was approaching when it would be invaluable, and when she would be unable to devote herself to these domestic duties. The evenings were the most delightful, as has been stated. Then, the day's labor over and everything being in order, they would sit together in the little room at the back of the shop and chat, or read, or pursue some study or innocent amusement. Mr. Loveday fished out an old draught-board, with draughts and a set of chessmen, and was surprised to find that Nansie was by no means an indifferent
  • 62. draught-player, and that she knew the moves of chess, in which her skill was not so great. At one time of his life he had been fond of backgammon, and he taught Nansie the game, Timothy looking on and learning more quickly than the fair pupil whose presence brightened the home. Timothy also made himself proficient in the intricacies of chess, and within a few months justified himself master, and gave odds. An evening seldom passed without a reading from a favorite author, Nansie's sweet, sympathetic voice imparting a charm to passages from which something valuable might have been missed had they not been read aloud. From this brief description it will be gathered that Nansie's influence was all for good. Thus time sped on, and Kingsley was still absent. He wrote to Nansie regularly, and she as regularly replied to his letters, never missing a post. She wrote in her bedroom always, and generally at night when the others were abed. In silence and solitude she was better able to open her heart to her husband. To say that she was entirely happy apart from Kingsley would not be true, but she had a spirit of rare hope and contentment, and her gratitude for the shelter and comfort of her new home was a counterbalance to the unhappiness she would otherwise have experienced. "A letter for you, Nansie," Mr. Loveday would say. Taking it eagerly, she would speed to her room and read it again and again, drawing hopeful auguries from words in which none really lay. For although Kingsley's letters were cheerfully and lovingly written, there was nothing substantial in them in their prospects of the future. They were all of the present, of his doings, of his adventures, of his travels, of what he had seen and done, forming a kind of diary faithfully kept, but with a strange blindness in respect of years to come. At one time he was in France, at another in Italy, at another in Germany, at another in Russia. "Mr. Seymour," he wrote, "has an insatiable thirst for travel, and will start off at an hour's notice from one country to another, moved
  • 63. seemingly by sudden impulses in which there appears to be an utter lack of system. It is inconvenient, but of course I am bound to accompany him; and there is, after all, in these unexpected transitions a charm to me, who could never be accused of being methodical. The serious drawback is that I am parted from you. What pleasure it would give me to have you by my side! And you would be no less happy than I." Then would follow a description of the places they passed through and stopped at, of people they met, and of small adventures which afforded him entertainment, ending always with protestations of love, the sincerity of which could not be doubted. But Mr. Loveday was never anything than grave when Nansie read aloud to him extracts from her husband's letters. "Who is Mr. Seymour?" he asked. "A gentleman," replied Nansie. "What is he, I mean?" was Mr. Loveday's next question. Nansie shook her head. "I have no idea." "Has your husband any idea?" "I suppose he has." "You only suppose, Nansie." "Yes, uncle, I can do nothing else, because Kingsley has never said anything about it." "Surely, if he really knew," persisted Mr. Loveday, "he would not be so silent on the subject." "Perhaps you are right, uncle; perhaps Kingsley does not really know."
  • 64. "If Mr. Seymour were travelling with any specific object in view, there would be no need for secrecy. Say that he were an enthusiast, that he had a craze, no matter in what shape, he would not disguise it." "Certainly not, uncle. Mr. Seymour must be travelling simply for pleasure." "Which is not a simple matter, Nansie," observed Mr. Loveday, "when a man runs after it. I can imagine few things more laborious and less likely of a satisfactory result. Now, Nansie, what are your husband's duties in his employment?" "He does not say, uncle." "Do you think he has any?" "I suppose so." "More supposings, Nansie." "What else can I say, uncle?" "Nothing, my dear, and I am to blame for worrying you. We will drop the subject." "No," said Nansie, earnestly, "please do not drop it." "Why should we continue it, Nansie?" "Because," replied Nansie, with a slight flush on her face, "I am afraid you are doing Kingsley an injustice." "I should be sorry to do that," said Mr. Loveday, very seriously. "I know you would," responded Nansie, in a tone of affection, "and that is why I want to set you right. You think that Kingsley is concealing something from me. He is not; he loves me too well. You
  • 65. think that I need some one to defend me. I do not. It is only when a person is wronged or oppressed that he needs a defender. No one has ever wronged or oppressed me. On the contrary, every one in the world is kind to me--that is," she added hastily in correction, for she thought of her husband's parents, "every one who knows me. Now you, uncle," she said, wistfully and tenderly, "before I came here I dare say you had no great regard for me." "I had not, Nansie." "It was only because you made a promise to my dear father out of your kind heart, and because you are an honorable man who would not break his word, that you welcomed me at first. And perhaps, too," her voice faltered a little here, "because I resemble my mother, for whom you had an affection." She paused, uncertain whether she had gone too far; but he inclined his head kindly towards her, and said, "You are speaking justly, Nansie. Go on, if you have anything more to say." "Yes, uncle, I have something more to say. That was your feeling for me at first; but since then--I say it humbly and gratefully--I have been happy in the belief that I have learned something for myself." "You have," said Mr. Loveday. "I love you, Nansie." "It is so sweet to me to know it, dear uncle," said Nansie, with tears in her eyes, "that I am enabled to bear Kingsley's absence--I hope and pray it will not be for long--with courage and resignation. And because of that, because of the love which unites us, you must think well of Kingsley--you must think always well of him. Uncle, he is the soul of honor, truth, and unselfishness. When he told me he loved me, and asked me to marry him, he did not weigh the consequences, as nearly every other man in his position would have done."
  • 66. "He was rash," observed Mr. Loveday. "Would you censure him for it? Did he not behave as an honorable, noble-hearted man?" "Undoubtedly. He has a worthy champion in his wife." "Ah, but it would distress me immeasurably to feel that you believe he needs a champion, or I a defender. You do not know him, uncle; when you do you will not fail to love him. I do not say that he is worldly wise, or quite fitted yet to battle with the future, but that it is his earnest desire to fit himself for what I feel will be a great struggle, and to perform his duty in a manly way. No man can do more, and, whatever may be our future, I shall love and honor him to the last." "My dear Nansie," said Mr. Loveday, "say that you are partly right in your views of my feelings for your husband; be content now to know that you have won me over to his side." "I am indeed content to know it, uncle." "But should that deprive a man of his right to judge actions and circumstances? We sometimes condemn those whom we love best." "It should not deprive him of the right," replied Nansie, adding, with what her husband would have told her was feminine logic, "but you must not condemn Kingsley." "I will not. I will apply ordinary tests. When he took the situation with Mr. Seymour, did he know anything of his employer?" "Nothing; but we were in great stress, and Kingsley was compelled to take advantage of his opportunity." "Admitting that. But a man must face his responsibilities, and discharge them to the best of his ability."
  • 67. "Yes, uncle, to the best of his ability." "My dear, had you been a man, you would have made a very good special pleader. To continue. What is your husband's salary?" A look of distress was in Nansie's eyes, and she did not reply. "I infer," said Mr. Loveday, replying for her, "that you do not know." "I fear I do," said Nansie, in a low tone. "Tell me, then." "I fear, uncle, that there is no salary attached to the situation." "But there should be?" "Yes, there should be." "Mr. Seymour, wishing to engage a gentleman as part companion and part secretary, must have been prepared to enter into some kind of monetary arrangement. Whose fault is it that the arrangement was not made? I will reply for you again. It must have been Kingsley's fault. Not very practical, Nansie." "I am afraid, uncle," said Nansie, speaking slowly, and as though she were about to commit an act of treason, "that Kingsley is not very practical." "But how is a man to get along in the world," said Mr. Loveday, with a curious mixture of decision and helplessness, "who thus neglects his opportunities? I am speaking entirely in a spirit of kindness, Nansie." "Yes, uncle, there's no occasion for you to remind me of that. But how can you blame Kingsley? He meets Mr. Seymour as one gentleman meets another. He is too delicate-minded to broach the subject of salary, and perhaps Mr. Seymour forgets it."
  • 68. "No, child, Mr. Seymour does not forget it. He takes advantage of your husband, and the consequence is that he is using a man's services without paying for them. And the consequence, further, is that valuable time is being wasted and misspent. Two or three weeks ago you commenced to read to me something in one of your husband's letters, and you suddenly stopped and did not continue. It was about money. Am I wrong in supposing that what you were about to read was in reply to something you had written in a letter to your husband?" "You are not wrong, uncle." "Plainly, you asked him whether he could not send you a little money?" "Yes." "And that was his reply. I can judge what it was." "Uncle, he had none to send. He is entirely dependent upon Mr. Seymour." "Who is not liberal?" "Yes, uncle." "Who is not only not liberal, but unjust?" "But that is not Kingsley's fault," pleaded Nansie. "I am not so sure. Child, child, you and your husband are like the children in the wood, and you know their fate." "I should be content," said Nansie, mournfully, for a moment overwhelmed--only for a moment; her mood changed instantly, and with indescribable tenderness she said: "But I want to live--to live!"
  • 69. There was a new note in her voice, and in her eyes a dreamy look of exquisite happiness which caused Mr. Loveday to wonder as he gazed upon her. Never had she been so beautiful as she was at that moment. In the expression on her face was something sacred and holy, and Mr. Loveday saw that she was deeply stirred by emotions beyond his ken. "Nansie!" "Yes, uncle," said Nansie, awaking from her dream. "You heard what I said?" "Yes, uncle--but you must not blame Kingsley; you must not blame my dear husband." "I will not--strongly. Only I should like you to consider what would have been your position if you had not found me in the London wilderness, or, having found me, if I had proved to be hard-hearted instead of a loving uncle." "What is the use of my considering it," she asked, in a tone of tender playfulness, "when I did find you, and when you proved yourself to be the best of men? It would be waste of time, would it not? Confess now." "Upon my word," said Mr. Loveday, "I should almost be justified in being cross with you if I did not suspect that any unreasonableness in our conversation must spring from me, in consequence of my not being familiar with the ways of women. But you shall not drive me completely from my point. For your sake, Nansie, I regret that I am poor. I never wished so much to be rich as I do at the present time. You are attending to me, Nansie?" "Yes, uncle."
  • 70. "Has your husband sent you any money at all since he has been away?" "None, uncle. He has not had it to send." "Yet you are in need of a little?" She looked at him, and her lips trembled slightly; and then again, a moment afterwards, the same expression of dreamy happiness stole into her face which he had observed before. "Yes, uncle, a little, a very little. But I shall manage; I have already earned a trifle." "In what way?" inquired Mr. Loveday, much mystified. "I got some needlework to do, and am being paid for it." "But in the name of all that's reasonable," exclaimed Mr. Loveday, "where and when do you do your work?" "In my room of a night, uncle," replied Nansie, blushing. "When we are all asleep," said Mr. Loveday, with the nearest approach to a grumble she had heard from his lips. "This must not continue, Nansie. You will do your work here of an evening and during the day, if it is necessary." "Yes, uncle, I will obey you. But--" her form swayed slightly, and she was compelled to make an effort to keep herself from swooning- -"you must not be angry with me. I am not very strong just now." She brought her work down, and went on with it before his eyes, and there was perfect harmony between them. But still, in the stillness of her room, when her uncle supposed her to be abed, her fingers were busy in their labor of tenderest love.
  • 72. CHAPTER XXI. The event which occurred in Mr. Loveday's house in Church Alley, and which caused him perhaps the greatest excitement in his life, will be explained by the following letter which Nansie wrote to her husband two months after the conversation between her and her uncle narrated in the last chapter: "My Own Dear Kingsley,-- At length I am strong enough to write to you, and it is a great joy to me to sit down once more to speak to the beloved wanderer of whom I think night and day. I am sure that you must be with me, in spirit, even in my dreamless sleep. You will not be sorry to know that you are not the only one now the thought of whom makes my heart a garden of flowers. I have a sweet treasure--surely the sweetest that ever blessed a happy woman--lying at my feet, and you will not begrudge me. Oh, my dear Kingsley, if you were with me at this moment, and we were looking down together on the lovely, innocent face of our darling, you would think as I do, that heaven itself was shining in the little room in which I am writing! Everything is so strangely beautiful that I can scarcely believe I am living the same life I lived till I became a happy, happy mother. It is not the same--it is sweeter, purer, more precious; I seem to hear angelic music even in the silence which surrounds me. I know what produces it. I put my face close to my darling's mouth, and I can just hear her soft breathing. "You will forgive me, will you not, for not having written to you for so long a time? I could not help it, you see. I know from your last letter that you received the one my uncle wrote to you, and that you would have flown to my side if you had had the means. It seems so cruel that you should be in such straits for money. Why do you not ask Mr. Seymour straightforwardly to pay you what he must owe you? It must be a good sum by this time. But perhaps it is wrong of me to say to you, why do you not do this or that?--for surely you must know what is best to be done, and the right time to do it. It is easy to judge for others, is it not, my dearest? I have the fullest faith and confidence in you; and, my dear, you must not worry about me. My uncle is the dearest friend I could have met with. He is
  • 73. kindness itself, and I feel that he loves me as if I were his daughter. And I have money--not much, Kingsley, dear, but enough--to go on with. Before baby came I earned some, and presently, when she can crawl, and walk, and speak--oh, Kingsley, the wonder of it!--I shall earn more. Uncle is so good to me that I need very little; but still some things are necessary which uncle does not understand about, and he has not more than he knows what to do with. Then, of course, I am an expense to him; but he never makes the least mention of that--he is too considerate, and I know he is glad to have me with him--and to have baby, too, although I fancy he does not quite know yet what to make of the darling. Indeed, I half think he is frightened of her. I see him sometimes looking at her when she is asleep with such a funny look in his eyes that I can hardly keep from laughing. The idea of a great big man being frightened of a little baby! But, Kingsley, dear (I would not confess it to anybody but you), I, too, am frightened of baby a little sometimes, when she lies in my lap, staring at me solemnly with her beautiful eyes--the color of yours, dearest--wide, wide open, without even so much as a blink in them. She seems to be reading me through and through. 'What are you thinking of, darling?' I whisper to her; and though of course she cannot answer me, I am sure that she understands, and that I should be very much astonished if I knew what was passing through her mind. She is going to be a very wise little body--I can see that--and very sweet and beautiful, and a great blessing to us. But she is that already, the greatest, the most precious that has ever fallen to my lot. You see, my dear husband, I look upon baby and you as almost one person; I cannot think of one without the other, it is impossible to separate you; so that when I say that baby is the greatest blessing that was ever given to me, I mean you as well as our darling.... "I have been obliged to stop; baby woke up, and we had a happy hour together. Now she is asleep again. She is so good, not at all fretful, as some babies are, and when she cries (which is really not often) it is a good healthy cry, which makes uncle say that her lungs are in fine condition.... "I have been reading over what I have written, and I stopped at the part where I speak of baby presently being able to walk and talk. Long before that, my dear Kingsley, I hope that you will be with us, and that we may be all living together. Do not think I am desirous of urging you to any other course than that which you consider right, but the happiness of our being together again would be so great! Is there any chance of Mr. Seymour coming to England and settling down here, and keeping you as his secretary at a fair salary? Then we could have a little home of our own, and you could go to Mr. Seymour in the morning and come home in the evening, and we should have one day in the week to ourselves. It is not a very great deal to ask for, but if some kind fairy would only grant it I should be supremely happy. Surely, surely, the future must have something good in store for us!
  • 74. "I have told you in my letters all about Timothy Chance, and how good and helpful he has been. Well, my dear Kingsley, until baby came I looked upon Timothy as my knight, my own special cavalier whom I could depend upon for service at any hour I chose to call upon him; but I think now that he has divided his allegiance, at least half of it going to baby. Timothy is an extraordinary lad, and uncle has a great opinion of him. Putting his duties in uncle's business out of the question, and putting baby and me out of the question, Timothy seems to have only one idea--eggs and fowls. He is now the proud owner of four fine hens, and his spare minutes (not too many) are devoted to them. He reads up every book he can lay hands upon that treats of fowls, and is really very clever in his proceedings. He made me laugh by saying: 'If fowls won't lay they must be made to lay;' and he studies up food to coax them. It is very amusing; but Timothy is so earnest that you cannot help respecting him, and respecting him more because he is successful. He shows me his figures, and is really making a profit every month. He is now drawing out plans for constructing a movable fowl-house, in compartments, each compartment accommodating eight fowls, and capable of being taken down and put up again in a wonderfully short time. Uncle says the plans are as nearly perfect as possible, and that he should not wonder if Timothy made a fortune one of these fine days. Timothy has insisted upon my accepting two new-laid eggs a week. Uncle and he had some words about them at first, uncle wanting to pay for them and Timothy refusing to accept any money; but the good lad was so hurt and took it so much to heart that I persuaded uncle to let him have his way. "Why do I write all this to you, dear Kingsley? To show you that I am in the midst of kindness, and that although you have not as yet been very fortunate, there is much to be grateful for. Remember our conversation, my darling, and never, never lose heart. Courage! courage! as you have said many times; and it will help you to feel assured that there are loving hearts beating here for you, and friends holding out willing hands. Why, if a poor, imperfectly educated lad like Timothy looks forward to making a fortune out of such simple things as eggs, what may you not do, with your advantages and education? All will be well, and there is a happy future before us. "I am tired, and have a dozen things to do, or I would keep on talking to you for hours. But I must really finish now. Baby sends you her dearest, dearest love. Indeed she does. I asked her, and upon my word, Kingsley, dear, she crowed and laughed. She is the most wonderful thing in the world, there is no doubt of that. I kiss her a hundred times for her dear papa, and I blow her kisses to you, and kiss them into the words I am writing. Our hearts are with you; our dearest love is yours. Oh, my darling! to close this letter is like bidding you good-bye again. Take all our love, which is forever blossoming for you. I close my eyes, and think that
  • 75. you are by my side; and I press you to my heart, which beats only for you and our darling child. What name shall I give her? "Good-bye, and God bless and guard you, my own dear love. "Your faithful, loving wife, Nansie."
  • 76. CHAPTER XXII. History repeats itself. The fortunes of Timothy Chance were turned by a fire--whether for good or evil, so far as regards himself, had yet to be proved. He was to go through another experience of a similar kind, in which, as on the first occasion, those who befriended him were the greatest sufferers. Nansie had to wait for more than a month before she received an answer to her last letter from Kingsley. He and his employer, it appears, had been continually on the move, and the letter which Mr. Loveday had written to him could not have reached him. It was by a lucky chance that Nansie's letter with the news that he was a father fell into his hands after a long delay; and she gathered from his reply that some of his own communications to her must have miscarried. This last letter which she received was far from encouraging. It was in parts wild and incoherent; the cheerfulness which had pervaded his previous missives was missing; the writer seemed to be losing hope. "I am learning some hard lessons," Kingsley wrote, "and am beginning to doubt whether there is any truth or justice left in the world." This was distressingly vague, for no explanation of Kingsley's moody reflection was forthcoming. It did not even appear that he was drawing consolation, as he had often done during his absence, from the thought that Nansie was ever ready with open arms to comfort him.
  • 77. "Instead of advancing myself," Kingsley wrote, "by the step I have taken, I have thrown myself back. It is a miserable confession to make, but there it is, and wherever I go I see, not the shadow, but the actual presentments of misery and injustice. Can any man inform me under what conditions of life happiness is to be found?" As was to be expected, the letter was not wanting in affectionate endearments and in expressions of joy at the birth of their child. "He is miserable," thought Nansie, because we are not together. "When we are once more united, will it be wise to consent to another separation?" She felt that he had need for the companionship of a stronger nature than his own, and she prayed for the time to come quickly when she would be with him to keep his courage from fainting within him. The very next day she was comforted by the receipt of another letter from Kingsley, in which was displayed his more cheerful, and perhaps more careless characteristics. "What could I have been thinking of," he said, "when I wrote you such a strange, stupid letter as I did yesterday? I must have lost my wits, and I hasten to atone for it by sending you another in a better and more natural vein. Burn the first, my dear Nansie, so that it may not be in existence to reproach me. A nice piece of inconsistency you have married, my dear! I do not remember ever to have been so cast down as I have been for two or three days past; but I should keep that to myself, and not burden you with a share of my despondency. It has been my habit always to look with a light spirit upon circumstances, whether they were in my favor or against me; and if I am to replace that by becoming savage and morose, I shall be laying up for myself a fine stock of unhappiness. So I determine, for your sake and mine, and for the sake of your dear little bairn, to whistle dull care away, and to make the best of things instead of the worst. Here am I, then, my usual self again, loving you with all my heart and soul, longing to be with you, longing to hold our dear bairn in my arms, longing to work to some good end. The question
  • 78. is, how to set about it, and what kind of end I am to work for. There is the difficulty--to fall into one's groove, as we have decided when we have talked about things, and then to go sailing smoothly along. Yes, that is it, and we must set ourselves to work to find out the way. I may confess to you, my dear wife, that up to this point success has not crowned my efforts; in point of fact, to put it plainly, I am thus far a failure. However, I cannot see how I am to blame. If I had had the gift of prophecy I should never have joined Mr. Seymour, but how was one to tell what would occur? Now, my dear, you urge me to make some approaches to Mr. Seymour with respect to money matters. Well, awkward as the position is, I have endeavored to do so, but have never got far enough, I am afraid, to make myself understood. My fault, I dare say, but just consider. There is nothing of the dependent in my relations with Mr. Seymour; he received me as an equal and we have associated as equals; when we first met there was no question raised as to a salary, and there has been none since. How, then, am I to go to him and say: 'You are indebted to me in such or such a sum'? It would be so coarse, and I do not see justification for it. If I have made a mistake I must suffer for it, and must not call upon another person to do so for me. That would not be consistent, or honorable, or gentlemanly. After all, my dearest, the standard of conduct is not arbitrary. What it would be right for Mr. Jones or Mr. Smith to do would not be right for me, and the reverse. What is to be done, then? Having made a mistake, I am too proud--perhaps not quite broken in yet--to get out of it in the most honorable way I can. It is in my power to say to Mr. Seymour: 'A thousand thanks for the pleasure you have afforded me and for the courtesies you have extended towards me, but my time is precious, and I must not keep away from my wife any longer.' That would be all right, but to follow it up with a request for a loan to enable me to get back to England would be so mean and coarse that I could never bring my tongue to utter the words. Can you understand my position, my darling? It is a humiliation to me to ask the question, but I am in a cleft stick, and am positively powerless to help myself. What a pity, what a pity that my original idea of living in a travelling caravan could not be carried out! Do you remember that
  • 79. delicious evening, dear? I should like to pass such another, and I dare say I should commit myself again to the foolish wish that it would last forever. "Now, my dearest, I am quite cheerful and light-hearted, but there is something I must tell you. I must warn you first, though, that this is a secret between ourselves; on no account must it be disclosed to your uncle or to any other person. Much may hang upon it--I do not know what; I prefer not to think; but at all events I must do nothing base or treacherous. If confidence has been reposed in me I must not betray it. But mark what I say, dear; it is only lately that I have come to a knowledge or a suspicion of certain things, and no hint must escape me of that knowledge or suspicion (it is a mixture of both) to any except yourself. "In speaking of Mr. Seymour you would naturally suppose that you were speaking of an Englishman, the name being unmistakably English. But Mr. Seymour is not an Englishman, and therefore the name must be assumed. As to this I have no definite information, but it is so certainly. It did not occur to me to mention to you that Mr. Seymour was probably a foreigner, the matter seeming to be of such small importance. He speaks English fluently, with the slightest accent; speaks also French, German, Italian, and Russian, as to the precisely correct accent of any one of which I am not a competent judge. I am not given to curiosity, and have a habit of believing what I am told; that is, I do not look much below the surface of things. Now, this may lead a man into a scrape. "Were I alone, without wife and child, I should, I dare say, allow myself to drift according to circumstances, but I am bound to consider you. Well, then, Mr. Seymour, with whose right name I am not acquainted, has ideas with which I am not sure whether I agree; he has a mission with which I am not sure whether I sympathize. There are large movements in public affairs which require deep investigation before one finally and firmly makes up one's mind. Take, for example, the revolutionary movement--the idea that all
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