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Excel 2007: Financial Analysis

Calculating declining balance depreciation


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Excel 2007: Financial Analysis

with Curt Frye

Video: Calculating declining balance depreciation

The Declining Balance method of calculating depreciation accelerates the rate at which an asset loses its value over time. You use the DB function to calculate depreciation in Excel. The Declining Balance method reduces an assets value by the amount it depreciated in the previous years. Excel then calculates the new depreciation based on that lower value. Hence the name Declining Balance Method. The DB function has four arguments, Cost, Salvage Value, Economic Life and Period.
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  1. 2m 6s
    1. Welcome
      1m 8s
    2. Using the exercise files
      32s
    3. Disclaimer
      26s
  2. 13m 20s
    1. Separating inputs and formulas
      2m 2s
    2. Avoiding common mistakes
      5m 39s
    3. Tracing formula precedents and dependents
      2m 52s
    4. Evaluating Excel formulas step by step
      2m 47s
  3. 18m 40s
    1. Tracking income and expenses using an Excel table
      3m 29s
    2. Creating a Pivot Table from table data
      3m 36s
    3. Pivoting a Pivot Table
      2m 22s
    4. Filtering a Pivot Table
      3m 11s
    5. Adding Pivot Table columns to enhance data analysis
      3m 5s
    6. Tracking cash flow using a Pivot Chart
      2m 57s
  4. 18m 48s
    1. Reading a corporate financial statement
      6m 1s
    2. Introducing common-sizing strategies for analyzing financial statements
      3m 59s
    3. Creating common-sized income statements
      3m 1s
    4. Creating common-sized balance sheets
      2m 53s
    5. Calculating percentage changes in financial statements
      2m 54s
  5. 8m 12s
    1. Calculating earnings per share
      1m 54s
    2. Calculating return on equity and return on assets
      2m 50s
    3. Calculating gross profit margin and net profit margin
      3m 28s
  6. 6m 19s
    1. Calculating the current ratio and quick ratio
      2m 47s
    2. Calculating the average collection period
      1m 56s
    3. Calculating inventory turnover
      1m 36s
  7. 6m 12s
    1. Calculating the equity ratio
      1m 26s
    2. Calculating the debt ratio
      2m 57s
    3. Calculating the times interest earned ratio
      1m 49s
  8. 10m 58s
    1. Calculating simple interest and compound interest
      3m 36s
    2. Applying nominal versus effective interest rates (APR versus APY)
      3m 21s
    3. Calculating the number of days between events
      4m 1s
  9. 13m 32s
    1. Computing the future value of an investment
      3m 30s
    2. Calculating present value
      2m 29s
    3. Calculating net present value
      2m 42s
    4. Calculating internal rate of return
      2m 24s
    5. Calculating NPV and IRR for uneven input periods (XNPV and XIRR)
      2m 27s
  10. 7m 30s
    1. Projecting future results using the Forecast function
      2m 9s
    2. Performing quick forecasts using the Fill handle
      2m 57s
    3. Adding a trendline to a chart
      2m 24s
  11. 22m 28s
    1. Introducing amortization
      2m 20s
    2. Calculating payments on a fully amortized loan
      2m 21s
    3. Calculating payments on a partially amortized loan (balloon payments)
      2m 4s
    4. Calculating interest and principal components of loan repayments
      5m 32s
    5. Introducing depreciation
      2m 1s
    6. Calculating straight line depreciation
      1m 30s
    7. Calculating declining balance depreciation
      3m 24s
    8. Calculating double declining balance depreciation
      3m 16s
  12. 9m 34s
    1. Introducing bonds and bond terminology
      1m 37s
    2. Calculating a bond's yield
      2m 15s
    3. Calculating the value of zero coupon bonds
      3m 18s
    4. Pricing bonds to be offered to investors
      2m 24s
  13. 23s
    1. Goodbye
      23s

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Excel 2007: Financial Analysis
2h 18m Intermediate Aug 25, 2009

Viewers: in countries Watching now:

Numbers and financial data drives today's business world and Excel 2007: Financial Analysis can help decode this information. The proper understanding of these numbers, and the formulas behind them, can be the gateway to corporate and personal success. Microsoft MVP (Most Valuable Professional) Curt Frye teaches basic fluency in corporate finance, enabling users to see the meaning behind essential financial calculations. Curt explains how to review formulas to ensure they have the proper inputs, and shows how to interpret formula output. He also covers how to calculate leverage ratios and amortization and depreciation schedules, as well as forecast future growth. Exercise files accompany this course.

Topics include:
  • Building a financial worksheet with Pivot Tables Reviewing financial statements through common-sized balance sheets Calculating percentage change over time in financial statements Determining profitability ratios and return on investments Studying liquidity and activity ratios through an average collection period Computing the future value of an investment
Subjects:
Business Data Analysis Finance
Software:
Excel
Author:
Curt Frye

Calculating declining balance depreciation

The Declining Balance method of calculating depreciation accelerates the rate at which an asset loses its value over time. You use the DB function to calculate depreciation in Excel. The Declining Balance method reduces an assets value by the amount it depreciated in the previous years. Excel then calculates the new depreciation based on that lower value. Hence the name Declining Balance Method. The DB function has four arguments, Cost, Salvage Value, Economic Life and Period.

The cost is the asset's initial cost. Salvage Value is what the asset will sell for when it becomes economically obsolete. Economic Life is the number of years that the asset will be economically viable and Period is the time frame for which you are calculating depreciation. Unless you are dealing with very short-lived assets, that period is almost always a year. So, to complete the formula we have =DB, the Initial Cost is in cell B7, and because we are copying the formula further down, the column in the table, we'll make that an absolute reference by pressing F4.

We have the Salvage Value in cell B9 and make it an absolute reference, the Economic Life, B11, same thing, make it an absolute reference. The period is in cell A16. And because we are copying the formula down and we want the formula to draw its value from the cell directly to the left, such as cell A16 in this case, we'll leave that as a relative reference. And you don't need to specify a month, because the period is one year.

We can close the parenthesis. Press Enter. And you can see the amount of depreciation each year using the Declining Balance Method. But remember that the second part of the Declining Balance Method is that you need to know an asset's New Value at the end of each year. So, now that we have the yearly depreciation we can calculate the new value, and that formula is =B7, which is the Initial Cost. We'll make that an absolute reference by pressing F4 and we subtract the sum of all of the previous depreciation amounts from the Initial Cost.

To do that, we have SUM B16, which is the first depreciation amount. We make this cell reference an absolute reference so it will not change, then a colon to indicate we are entering a range and then B16. Now, we have entered B16 twice and the reason is because we want to create a range that will change as the formula is copied down the column. So, the first B16 is an absolute reference, so it will not change.

The second reference to B16 is left as a relative reference so it will change. In other words, in cell C17, it would be the SUM of B16 to B17, and you'll see how that works in a second. When I close the parenthesis and hit return. You have the depreciation, which is subtracted from the Initial Cost, and you have the New Value in cell C16, C17 and so on down to C22. The Declining Balance Depreciation Method enables companies to capture more depreciation benefits early in an assets economic life.

Decreasing tax payments and thereby freeing up capital to invest in other areas.

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