Version 5.1 does not directly use Microsoft’s Ribbon interface, but it appears inside an Add-Ins tab on the Ribbon, where you can access the Rainbow menu and toolbar. The steps for installing and trouble-shooting Rainbow Analyst under Office 2007 are quite different from previous versions of Excel, so we have now included full details of the Office 2007 procedures on other pages of our site.

If you currently have a single-user licence for version 5.0, you can download and install version 5.1 for free from the Download page of our website. If you have a corporate site licence, please contact us for details of how to upgrade.

Now that version 5 has been available for over a year, we are offering the chance for users of earlier versions to upgrade for free if you have a single-user licence, or for a nominal charge of £99.00 if you have a corporate site licence.

You can download the latest single-user version of Rainbow Analyst from our Download page. This requires a different licence key from earlier versions, so please contact us to obtain your upgraded licence key, or for details of how to upgrade your corporate site licence version of Rainbow Analyst Professional.

Rainbow Analyst Personal has been selected for listing as freeware on the Softpedia software database, and has been certified by Softpedia to be completely clean of adware/spyware components.

For more details and to download your own copy, please visit our Download page, where you can also find details of our flagship product, Rainbow Analyst Professional. This has also been selected for listing on the Softpedia software database, and has been certified by Softpedia to be completely clean of adware/spyware components.

And in version 5.0 you can now put all your reports and maps in the same workbook (instead of each being a separate single-worksheet workbook). If you wish, you can even append them as additional worksheets in the workbook you are analysing.

Version 5.0 also includes important enhancements to Rainbow’s core functionality, of which the following are just a selection:

• The new Summary Report gives you a high-level view of a workbook, including e.g. data on Visual Basic code modules and average and maximum formula length per sheet, so that you can assess potential problem areas before starting detailed analysis.
• The Inter-Sheet Logic reports can now group relevant copied formulas together, producing a much more compact and readable report. And this technique has enabled us to speed up the inter-sheet precedents report by an order of magnitude, so that you can now quickly and easily generate a complete inter-sheet precedents report even for a model of some size.
• Nearly all Rainbow’s functions can now generate a report (grouping copied formulas where appropriate), rather than simply applying colour to the relevant cells. This means that Rainbow can now provide a much more comprehensive set of tools for use in a structured model audit process.

Cell Inspector uses a complex probabilistic scoring system to generate the cell descriptions; the screenshot on the left is a good example of how this works. Although of course the descriptions cannot be guaranteed to be 100% accurate in every single case, they have been proved to be highly reliable across a range of financial models, and they can provide a very fast indication of possible faulty logic.

As an example, suppose you run Cell Inspector on cell H74 in sheet Operations, and Cell Inspector shows this as Availability Fee - 30/09/2013, with the formula “=Inputs!H101*(1-$C$26)”. If you then look at Cell Inspector’s list of Precedents and see that Inputs!H101 is Availability Charge - 30/09/2012, you can immediately spot that there may be a problem with misaligned columns in different sheets referring to different time periods.

If you come across a complex formula, perhaps with several nested IF() statements, you can click on the Parse Formula button to see a structured layout of the formula which will quickly identify which are the relevant components of each IF() statement. And at any time you can click the Minimise button so that you can see the parts of the worksheet which may be hidden by the Cell Inspector dialogue box.

For example, an employee at a US investment fund omitted the minus sign on a figure of $1.2 billion while transferring data between spreadsheets, thus “creating” a $2.3 billion gain instead of the actual $0.1 billion loss. The company announced to shareholders a distribution of $4.32 a share; a month later, when the error was detected, it had to announce that there would be no distribution (further information at Dr. Panko’s website; see “Other sites”).

The vast majority of such errors could have been avoided by following a small number of key quality principles in building models, as explained below. (References to spreadsheet features assume the use of Microsoft Excel^TM, but are equally applicable to other spreadsheet software.)

• Design, then develop, then test
• Separate the inputs from the calculations
• Use only one formula per row
• Avoid balancing figures
• Use protection and locking

Design, then develop, then test

Before starting to build a model, it is essential to plan out its overall structure and agree a detailed design for the reports and sensitivities, in order to ensure that the model will actually deliver what is required of it. This process will effectively determine the inputs and outputs; all that remains then is to build a bridge between the two with the appropriate calculations. These should be tested at each stage of developing the model as well as when the model is complete. In addition to more specific tests, it is essential to check for reasonable-ness; are the results about right, and do they change sensibly when the inputs are altered?

Separate the inputs from the calculations

Users should be able to see the assumptions underlying the model results simply by looking at the printouts. If numbers are hard-coded into the calculations this becomes impossible, and it is then also very difficult to change the assumptions. Consequently all assumptions, even “constants” like the number of days in the year, should be set out as inputs and not hard-coded into formulas. The model should have a separate area (generally one or more sheets) containing all the input values.

Use only one formula per row

It is often very tempting to use different formulas within a row, for instance in a quarterly model where tax is paid annually. However, this makes the model very prone to errors, extremely difficult to check, and also very inflexible. In fact it is easier simply to set up a row containing calculated “flag” values, and write a formula which pays the tax when the flag is set to 1. When designing a formula, the question should always be “What is the relationship between all the factors which can affect the results on this row?”, not simply “What is the easiest way to calculate the answer in this cell?”

Avoid balancing figures

Balancing figures are extremely dangerous because they can very easily conceal errors in a spreadsheet. Consequently cash, for instance, should always be calculated as cash balance brought forward plus inflows minus outflows, not simply as the amount required to balance the balance sheet. It is then essential to check that the balance sheet remains in balance under all the different sensitivities and scenarios in the model.

Use protection and locking

The integrity of a carefully constructed spreadsheet can be easily destroyed by a user who, for example, wishes to see the effect of raising turnover to 100m in period 5, and simply types “100″ directly into the cell, overwriting the turnover calculation. To prevent this, all sheets (or at least those containing calculations) should be protected, and input cells should be formatted as unlocked.

Some of the most frequently encountered issues are:

• Circular formulas
• Interest calculations
• Currency and inflation
• Mixed time periods
• Large models
• Visual Basic^TM for Excel^TM

Circular formulas

Circular formulas are hardly ever necessary, except perhaps in certain front-end-fee calculations. In nearly all other cases they should be eliminated, because they obscure the logic of the model and can easily lead to spurious results. It can be difficult to trace the chain of circularity; one useful approach is to break the chain temporarily by replacing the formula in a “circular” cell with a fixed input value. If a circular calculation is absolutely necessary, it is important to control it by a switch (allowing linear calculation), or by using Visual Basic to manage the iterations.

Interest calculations

One area where circular formulas are often used is in calculating interest, based on the average of the opening and closing cash balances. This is not necessary, and it is much better to calculate an approximate closing balance before interest, and then calculate the interest on the average of this and the opening balance. For complete (but perhaps spurious) accuracy, it is even possible to “gross-up” the closing balance to include interest without causing circularity.

Currency and inflation

For economic and public-sector models, reports may be required in “real” rather than nominal (money of the day) values. However, the underlying calculations should always use nominal values and then convert these to real. A model which attempts to calculate directly in real terms is likely to give misleading results, because it fails to convert carried-forward balances to the correct brought-forward values for each period. Similarly, multi-currency models should use local currency as far as possible, converting to GBP or USD only for final reporting. The only exception to this is in certain high-inflation economies with FX rates fixed to USD.

Mixed time periods

Project finance models often require monthly or quarterly periods at the start of the model, followed by six-monthly or annual periods later, and this can make it difficult to use a single formula for the whole of each row. One possible solution is to use a calculated flag row indicating the number of months in each period, which can be used as a multiplier in, for example, interest calculations. An alternative approach, if the model is not too big, is to perform all the underlying calculations using the smallest time period, and then consolidate for reporting purposes.

Large models

It is tempting to use multiple files for large models, but this should be regarded as a last resort. Multiple-file models are prone to hidden circularities, and can easily become corrupted unless all files are open in memory when any structural changes are made. It is preferable to reduce the size of a large model by eliminating any unnecessary graphics and formatting, and by simplifying formulas. In particular, if there are large blocks of repeating formulas, these may be replaced by an array formula, by a reference to a named formula, or by a custom Visual Basic function.

Visual Basic^TM for Excel^TM

Many spreadsheet users limit their use of Visual Basic to recording with the Macro Recorder, for instance to generate a standard printout. However, VB for Excel is actually a complete Microsoft Windows application development environment, and it can also be very valuable in managing complex calculations, for instance with custom functions. However, as in any programming language, it is essential to ensure that VB routines are properly designed (with minimal use of GoTo), carefully written (with explicit variable declarations, standard indentation and liberal comments) and thoroughly tested (covering all paths through the code).

In 1999 Mike left KPMG to fulfil a longstanding ambition to travel around the world. On his return to the UK in 2000 he then set up his own financial modelling consultancy, TheModelAnswer.

You can download a printable version of Mike’s CV in MS Word 6.0 format (right-click then click on ‘Save Target As’ or ‘Save Link As’).

• Trading terms evaluation
• Pricing decision support
• Transport franchise bid
• Power generation industry
• Debt restructuring
• Payroll and tax grossing-up
• Lease evaluation and rental adjustment
• Management accounting and consolidation

Trading terms evaluation

A trading terms model for a leading food and confectionery manufacturer. The model enabled the client to see the real cost of its trading terms with different distributors and retailers, and to evaluate the effect of proposed new terms.

Pricing decision support

A model which simulated the process by which pricing decisions were taken at a leading hardware manufacturer. The model enabled the company to implement a pan-European pricing strategy which eliminated cross-border pricing anomalies and improved overall profitability.

Transport franchise bid

An investment appraisal model for a company bidding to acquire a passenger rail franchise. The model incorporated the contractual terms of the franchise and generated a set of projected financial statements plus calculations of discounted net present value. Printouts from the model formed part of the final franchise bid submission.

Power generation industry

A large multiple-file model of the UK electricity generation industry, which Mike partly rewrote, developing a set of transparent interface routines and replacing some of the calculations with C code. This reduced the run-time from about 30 minutes to about 5 minutes.

Debt restructuring

A spreadsheet representation of a complex legal document representing a major debt restructuring agreement for a consortium of banks in the Middle East. The model provided assistance in finalising the terms of the agreement, and was then used as an operational system to calculate the allocation of repayments under the agreement.

Payroll and tax grossing-up

A spreadsheet-based payroll system for expatriate staff of a major Japanese conglomerate. The system involved calculation of net pay from rules and tables, grossing up for UK tax, and production of payroll and internal accounting documentation.

Lease evaluation and rental adjustment

A complex model to demonstrate the financial effects of certain back-to-back lease and hire purchase transactions entered into by an international mining company. The model provided for various methods of evaluation and for automatic calculation of lease rental adjustments, and it was used as evidence in legal proceedings.

Management accounting and consolidation

A computerised management accounting system for the retail operation of a major car importer, with two levels of automatic consolidation.