Time value of money, valuation and Excel for finance

Time value of money

A rupee today is worth more than a rupee tomorrow (it can be invested; inflation; risk).

• Future value: FV = PV × (1 + r)ⁿ. ₹1,00,000 at 10% for 3 years → ₹1,33,100.
• Present value: PV = FV ÷ (1 + r)ⁿ. ₹1,33,100 in 3 years at 10% → ₹1,00,000 today.
• NPV (net present value): the sum of discounted future cash flows minus the investment. NPV > 0 creates value.
• IRR: the discount rate at which NPV = 0. Accept projects whose IRR beats the cost of capital.
• Payback period: how long until the investment is recovered (simple, ignores time value).

Valuation basics

• DCF (discounted cash flow): forecast free cash flows (usually 5–10 years), calculate a terminal value, and discount everything at the WACC (weighted average cost of capital) to get the enterprise value.
• Relative valuation / comparables: multiples such as EV/EBITDA, P/E, EV/Revenue from similar companies or transactions.
• Enterprise value = equity value + debt − cash (roughly: the value of the whole business, for all capital providers).
• WACC = (E/V × cost of equity) + (D/V × cost of debt × (1 − tax rate)); cost of equity often comes from CAPM: risk-free rate + beta × equity risk premium.

Excel for finance

• Functions: SUMIFS, XLOOKUP/INDEX-MATCH, IF/IFS, EOMONTH, NPV, XNPV, IRR, XIRR, PMT (loan EMIs), ROUND.
• Pivot tables for ledgers and expense analysis; conditional formatting for ageing reports.
• Modelling hygiene: inputs in one place (blue font), formulas in black, no hard-coded numbers inside formulas, consistent time periods across columns, checks that the balance sheet balances, clear labels.
• Shortcuts matter in interviews and on the job: learn to navigate and build without a mouse.

EMI example: =PMT(9%/12, 60, -500000) ≈ ₹10,379 per month for a ₹5 lakh loan over 5 years at 9%.

Career paths

Accounting and audit (CA articleship, Big Four), corporate finance and FP&A, banking (credit, operations), investment banking and equity research, fintech and treasury. Certifications: CA, CMA, CS, CFA, ACCA, FRM; Excel and Tally certifications help freshers.

Check yourself

• Is ₹1,00,000 now better than ₹1,20,000 in two years at an 8% discount rate?
• What's the difference between enterprise value and equity value?
• Which Excel function calculates IRR for irregular cash-flow dates?