Financial functions are used to perform common financial calculations for both personal finance and corporate finance applications.
Financial functions are used to perform common financial calculations like finding the present value of an investment (PV and NPV), the depreciation of an asset (DB, DDB, SLN, and SYD), the accrued interest of a security (ACCRINT), and more.
Financial functions are commonly used in spreadsheets for both personal finance and corporate finance and are often used in conjunction with other types of functions like math functions and statistical functions.
How to Use Financial Functions
In the examples below, we’ll take a look at some commonly used financial functions. For documentation on every financial function supported by Spreadsheet.com, reference our section on Financial functions.
When using functions in your workbook, you can input and edit formulas either directly in the cell, or from the formula bar between the worksheet toolbar and the spreadsheet grid. Learn more in our article on Creating and Editing Formulas.
How to Calculate an Investment’s Present Value (PV)
For this example, we’ve created a simple worksheet showing information about a hypothetical risk-free investment with constant cash flows. Using information about the investment’s cash flow and discount rate, we want to determine the investment’s present value, or the total value of the investment expressed in today’s dollars.
The investment described here is a risk-free investment that guarantees an annual return of $1,500 for the next five years and has a discount rate of 3.5%. By inputting the Present Value (PV) function in Cell E7, we can calculate the value of the investment today. Note that when using the PV function, a positive return ($1,500) is expressed with a negative argument (-1500).
How to Calculate an Investment’s Net Present Value (NPV)
The PV formula only supports investments with constant cash flows. If our investment were to have a variable cash flow, we could use the Net Present Value (NPV) function. Let’s take a look at that below.
The investment described here has the same discount rate, but returns a different amount each year. To account for the variable cash flow, we’ve input the NPV function in Cell E7 to compute the value of the investment today.
How to Calculate an Investment’s Internal Rate of Return (IRR)
For this example, we’ve created another simple worksheet showing information about two hypothetical investments. We want to compare the investments’ internal rates of return, or the annual growth rates that we expect each investment to generate.
Because the two potential investments differ in their required investment amount and annual returns, it’s difficult to compare their relative quality with cash flows alone. By inputting the Internal Rate of Return (IRR) function in Cells F6 and F7, we can compare their expected annual growth rates.
The IRR calculations reveal that Investment 1 has a higher expected annual return. Assuming all other factors are equal, we expect that Investment 1 is the better investment opportunity.
More Financial Functions
PV, NPV, and IRR are just three of the more than two dozen financial functions supported by Spreadsheet.com. Take a look at our full suite of articles on financial functions to learn more.
Get started on your next finance workbook with Spreadsheet.com’s finance and accounting templates. Or, read on to learn more about other types of functions supported by Spreadsheet.com, including lookup functions, logical functions, statistical functions, and more.