Building a Financial Model – Use Spreadsheet Check sums to Detect Errors

Use Spreadsheet Check sums to Detect Errors

Spreadsheet checksumsWhen building a financial model, regularly inserting check-sums at various points in the financial model spreadsheet ensures no arithmetic errors.

A check-sum can be inserted to ensure that rows and columns of major blocks of calculation formula add up to the same number.

An inconsistent check-sum will therefore enable a good financial modeler to quickly identify and correct calculation formula errors in a financial modeling exercise.

Look at the illustration for an example of a spreadsheet check-sum.

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4 Responses to “Building a Financial Model – Use Spreadsheet Check sums to Detect Errors”

  1. Its too short an article . you need to put little more stuff into it to bring clarity

  2. Thanks for your feedback Vivek, much appreciated.

    We’d love to be able to cover spreadsheet check-sums in more detail but do think that it is a fundamental financial modeling technique that requires more consistent, disciplined practice by financial modelers, then analysis of written theory per se.

    Nonetheless if you have any further information that you think we can include on this specific topic of spreadsheet check-sums, just let us know and we’d be happy to write about it.

  3. Thanks for sharing. Very informative.

    I am quite new to financial models but need to pick up the skills within a very SHORT time. Would appreciate very much if your team could share some best practices on:

    1. Document assumptions (is it better to have spell out all assumptions on a seperate worksheet? Or is it better to have them at the top of a long worksheet?)

    2. Determining key in numbers and forecast variables (i.e. some prefer to use margin % as forecast variable and some like to use growth % as variable). I got very confused and frustrated when I need to go through the labyrinth to sort out their logics behind (they left the company already).

    3. Could you share an example of a simple manufacturing company P/L forecast?

    Thanks a lot!

  4. Anika:

    1. If the same set of assumptions are used repeated and linked into formulas across several worksheets, then it would clearly be inefficient to duplicate them across several worksheets. However if the assumptions are localised to a single worksheet and not used anywhere else in the financial model, then it should be fine to keep them on the same worksheet (whether at the top or bottom would depending on how important it is to display them for another user’s information).

    2. This would depend on the desired outcome and what information inputs you intend to use to drive the results of the financial model. The important thing would be to remain consistent in your forecast variable (i.e. either use one or the other, but not both) and if that is not possible then state clearly using short notes or comments next to the specific line item stating the rationale for using the forecast variable. The important thing is to keep disciplined in keeping a good log of changes made for future reference and other users of the financial model.

    3. Would refer to you Finance 3.0 where you will be able to access and download a wide variety of financial modeling and analysis excel templates for free. You will need to sign up as a member first (also for free).

    Trust this helps…

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