Investment Analysis in Excel: How to Evaluate Stocks and Portfolios

Investment analysis is critical for traders, investors, and financial professionals. Whether you’re evaluating individual stocks or an entire portfolio, Excel remains one of the most powerful tools for performing financial analysis. With its vast array of functions, data handling capabilities, and automation features, Excel enables users to make informed investment decisions efficiently.

In this guide, we’ll cover the essential techniques for evaluating stocks and portfolios in Excel, including financial metrics, excel valuation models, risk analysis, and portfolio optimization.

Why Use Excel for Investment Analysis?

Excel remains the industry standard for investment analysis due to its unparalleled flexibility, computational depth, and extensive analytical capabilities. Unlike black-box solutions, Excel offers a transparent and customizable approach to financial modeling, allowing investors to construct dynamic models tailored to specific strategies. 

Here’s why professionals rely on Excel for investment analysis:

Data Integration & Automation

Excel seamlessly integrates with various financial data sources, including Bloomberg, Yahoo Finance, and Google Finance, allowing for real-time and historical data analysis. Advanced users leverage Power Query и VBA Macros to automate data imports, minimizing manual effort and ensuring up-to-date information.

Advanced Financial Modeling

From discounted cash flow (DCF) models to Monte Carlo simulations, Excel enables investors to build intricate models that account for various market conditions and risk factors. Users can conduct sensitivity analyses to assess investment scenarios with features like goal seek, solver, and scenario manager.

Robust Statistical & Quantitative Analysis

Excel’s Data Analysis ToolPak provides advanced statistical functions, enabling investors to perform regression analysis, hypothesis testing, and variance-covariance matrices. These tools are critical for evaluating market trends, asset correlations, and risk-adjusted returns.

Portfolio Optimization & Risk Management

Through matrix algebra, covariance analysis, and optimization techniques, Excel facilitates modern portfolio theory (MPT) applications. The Solver add-in allows users to optimize asset allocations to maximize returns for a given level of risk, while Monte Carlo simulations help assess potential downside scenarios.

Customization & Scalability

Unlike prebuilt financial tools, Excel allows full customization of investment strategies. Analysts can develop proprietary valuation models, automate repetitive calculations, and integrate Excel with Python, R, or SQL for more sophisticated quantitative finance applications.

Visualization & Reporting

Excel’s charting and visualization tools enable investors to create compelling dashboards, compare asset performance, and track investment KPIs. Conditional formatting, sparklines, and pivot tables transform raw data into actionable insights.

Given its unmatched analytical depth and automation potential, Excel remains a cornerstone of investment analysis for hedge funds, financial analysts, portfolio managers, and individual investors.

Setting Up Your Excel Environment

Before diving into investment analysis, it’s essential to set up your Excel environment for optimal efficiency:

• Data Importing: Learn how to import data from various sources such as Yahoo Finance, Bloomberg, or CSV files. The Data tab and Get & Transform Data feature will streamline this process.
• Formatting: Ensure your data is clean and well-organized. Use tables (Ctrl + T) for better data management and apply conditional formatting to highlight key metrics.
• Add-Ins: Consider installing Excel add-ins like Solver for optimization problems or Analysis ToolPak for advanced statistical analysis.
• SHEETS.MARKET Templates: Pre-built templates that automatically fetch stock data, saving time and improving accuracy.

Fundamental Analysis of Individual Stocks

Fundamental analysis involves evaluating a company’s financial health and intrinsic value. Key metrics include:

Financial Statements Analysis

• Income Statement: Analyze revenue, net income, and earnings per share (EPS). Use formulas to calculate growth rates and margins.
  • Revenue Growth = (Current Revenue – Previous Revenue) / Previous Revenue
  • Net Profit Margin = Net Income / Revenue

• Balance Sheet: Assess assets, liabilities, and equity. Calculate ratios like debt-to-equity and current ratios.
  • Debt-to-Equity Ratio = Total Liabilities / Shareholder’s Equity
  • Current Ratio = Current Assets / Current Liabilities
• Cash Flow Statement: Evaluate operating, investing, and financing cash flows. Free cash flow (FCF) is a crucial metric.
  • Free Cash Flow = Operating Cash Flow – Capital Expenditures

Valuation Metrics

• Price-to-Earnings (P/E) Ratio: Compare a company’s current share price to its EPS. A lower P/E ratio may indicate an undervalued stock, while a higher ratio could signal overvaluation.
  • P/E Ratio = Market Value per Share / Earnings per Share

• Price-to-Book (P/B) Ratio: This ratio helps determine if a stock trades at a premium or discount compared to its book value.
  • P/B Ratio = Market Price per Share / Book Value per Share
• Discounted Cash Flow (DCF) Analysis: Estimate the present value of future cash flows.
  • DCF = Σ [CFt / (1 + r)^t]
  • Where CFt = Cash Flow at time t, r = discount rate

Technical Analysis of Individual Stocks

Technical analysis focuses on statistical trends gathered from trading activity. Key tools include:

Moving Averages

• Simple Moving Average (SMA): Calculate the average price over a specific period.
  • SMA = (P1 + P2 + … + Pn) / n

Where P = Price, n = number of periods

• Exponential Moving Average (EMA): Give more weight to recent prices.
  • EMA = (Price * (2 / (n + 1))) + (Previous EMA * (1 – (2 / (n + 1))))

Relative Strength Index (RSI)

• RSI measures the magnitude of recent price changes to evaluate overbought or oversold conditions.
  • RSI = 100 – (100 / (1 + (Average Gain / Average Loss)))

Bollinger Bands

• Bollinger Bands consist of a middle band (SMA) and two standard deviation bands.
  • Upper Band = SMA + (2 * Standard Deviation)
  • Lower Band = SMA – (2 * Standard Deviation)

Excel Tools for Technical Analysis

• Conditional Formatting: Highlight cells based on criteria, such as overbought or oversold conditions.
• Sparklines: Insert mini-charts within cells to visualize price trends.

Portfolio Analysis

Portfolio analysis involves evaluating the performance and risk of a collection of investments.

Portfolio Returns

• Calculate the weighted average return of the portfolio.
  • Portfolio Return = Σ (Weight of Asset i * Return of Asset i)

Portfolio Risk

• Variance and Standard Deviation: Measure the volatility of portfolio returns.
  • Portfolio Variance = Σ Σ (Weight i * Weight j * Covariance i,j)
  • Portfolio Standard Deviation = SQRT(Portfolio Variance)
• Beta: Assess the portfolio’s sensitivity to market movements.
  • Beta = Covariance(Portfolio Returns, Market Returns) / Variance(Market Returns)

Diversification

• Correlation Matrix: Analyze the correlation between assets to understand diversification benefits.
  • Correlation = COVAR(Asset A Returns, Asset B Returns) / (STDEV.P(Asset A Returns) * STDEV.P(Asset B Returns))

Excel Tools for Portfolio Analysis

• Solver: Use Solver to optimize the portfolio by maximizing return for a given level of risk.
• PivotTables: Summarize large datasets to analyze portfolio composition and performance.

Risk Assessment

Understanding and managing risk is crucial in investment analysis.

Value at Risk (VaR)

• VaR estimates a portfolio’s potential loss in value over a defined period for a given confidence interval.
  • VaR = Portfolio Value * Z-Score * Portfolio Standard Deviation

Sharpe Ratio

• The Sharpe Ratio measures risk-adjusted return.
  • Sharpe Ratio = (Portfolio Return – Risk-Free Rate) / Portfolio Standard Deviation

Monte Carlo Simulation

• Use Monte Carlo simulation to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables.
  • Simulated Return = Expected Return + (Z * Standard Deviation)
  • Where Z = random standard normal variable

Standard Deviation (Volatility)

• Volatility measures the stock’s price fluctuations over time. In Excel, use:
  • =STDEV.P(range)

Beta Calculation

• Beta measures a stock’s sensitivity to market movements. You can calculate beta using regression analysis:
  • =LINEST(stock_returns, market_returns)
  • A beta >1 indicates higher volatility than the market, while a beta <1 suggests lower volatility.

Performance Measurement

Evaluating the performance of investments is essential to ensure they meet expectations.

Time-Weighted vs. Money-Weighted Returns

• Time-Weighted Return: Measures the compound rate of growth in a portfolio.
  • TWR = [(1 + HPR1) * (1 + HPR2) * … * (1 + HPRn)] – 1
  • Where HPR = Holding Period Return
• Money-Weighted Return: Considers the timing and amount of cash flows.
  • MWR = IRR(Cash Flows)

Benchmarking

• Compare portfolio performance against a benchmark index.
  • Excess Return = Portfolio Return – Benchmark Return

Advanced Techniques

Regression Analysis

• Use regression analysis to understand the relationship between portfolio returns and market returns.
  • Slope = SLOPE(Portfolio Returns, Market Returns)
  • Intercept = INTERCEPT(Portfolio Returns, Market Returns)

Factor Analysis

• Analyze the impact of various factors (e.g., size, value, momentum) on portfolio returns.
  • Factor Exposure = COVAR(Portfolio Returns, Factor Returns) / VAR(Factor Returns)

Optimization with Constraints

• Use Solver to optimize portfolio allocation with constraints such as minimum/maximum weights, sector limits, etc.

Simplify Your Investment Analysis with SHEETS.MARKET Templates

Building complex financial models in Excel can be time-consuming and prone to errors. Fortunately, ЛИСТЫ.РЫНОК provides pre-built investment analysis templates that simplify calculations, automate data fetching, and improve accuracy. Whether you need a stock screener, portfolio tracker, or risk assessment tool, these templates streamline financial workflows.

Explore Ready-Made Investment Templates on SHEETS.MARKET
Access professionally designed Excel and Google Sheets templates tailored for investment analysis. Automate stock data retrieval, conduct risk assessments, and easily optimize portfolios. Check out SHEETS.MARKET on LinkedIn for additional insights and expert resources.