Format and Label Your Financial Model for Clarity
Applying appropriate formatting and labeling to financial models is sometimes neglected by even experienced financial modelers. You need to include as many descriptions and instructions as possible within the model to make it absolutely obvious how to use the model and how the calculations work. Don’t assume that someone using the model will be able to understand what he’s supposed to do with the model, its purpose, and what should be changed when.
Here are some simple formatting rules to follow:
Format input cells differently from calculation cells.
- Use the correct symbols for currency. If the currency is dollars, format 5000 as $5,000 for example, or if it’s in euros, format it as € 5,000.
- Use commas for thousands. This makes your model easier to read and prevents mistakes and misinterpretations.
- Include a dedicated units column. Make sure the units denoted by the amounts in that column are entered into that column’s heading (for example, “MWh,” “Liters,” or “Headcount”).
- Label your data clearly. It sounds simple, but mixing units (for example, mixing apples and oranges, or miles and kilometers) is a common source of error in financial modeling, and good formatting and labeling will avoid this.
- If you round figures into thousands, show this clearly at the top of the row with a descriptive heading. For example, make the column heading “Revenue $’000” to avoid confusion and misinterpretation.
- Include units or currencies in column and row headings. Where possible, each column or row should contain only one type of unit or currency.
- Reserve a column for constants that apply to all years, months, or days. For example, if growth rate is 5 percent, have that in column D, and then link all calculations to column D.