A good financial analyst never uses “magic numbers” in forming calculation formulas when performing financial modeling; always make implicit assumptions explicit.
Instead of using numbers in a formula, use the “name” of the number. For example in the case of exchange rate conversion:
- State clearly in a separate assumptions section the value of the number
- Name the assumption cell (e.g. EUR_USD_exrate).
- Use the name in a formula, e.g. =sales * EUR_USD_exrate.
However, this rule does have one exception: the constant 1 is allowed for growth, and date series, for instance:
- = ( 1 + growth ) * previous_years_sales
- = last_year + 1 where last_year is a relative reference to the values of the previous year.
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