A financial model, like any other analytical model, isn’t error proof. The financial modelling related errors can be divided into two –
- MS Excel related errors
- Errors due to poor knowledge of finance and industry
Both these errors can be addressed by a consistent debugging and introducing checks and balances in your model. Let’s have a look at some of the common EXCEL RELATED ERRORS that we often encounter in a financial model.
- Hard-coded numbers in formulas
- Inconsistent calculations across rows
- Linking errors
- Signs (positive or negative) related errors
- Absolute or mixed referencing while copying
- Hidden errors due to IFERROR and ISERROR in outputs
- Linking to other workbooks
- Circularity (Iterations)
- Data Tables (inappropriate linking or principles not followed)
There may be many other mistakes due to improper use of Excel while preparing a financial model, but the above errors are the most common among them.
The following video gives you a glimpse about the same.