Definition
Goal Seek is a built-in Excel function used in financial analysis that helps find a specific value for a target cell by adjusting the value of one other cell. It performs what-if analysis for a single input value to reach a defined outcome you set. Essentially, it identifies what needs to change for you to achieve your financial goal.
Key Takeaways
- Goal Seek in Excel is a powerful tool used for scenario analysis and for solving equations. It allows you to set a desired output (goal) and then automatically finds the input values that result in that goal.
- Goal Seek is useful for financial modelling and other finance-related situations where we want to determine the value of an input that will result in a specific desired output.
- The tool does not require advanced knowledge of Excel functions. You only need to provide the cell that contains the formula (Set Cell), the value you want the formula to return (To Value), and the cell containing the input value to be adjusted (By Changing Cell).
Importance
Goal Seek is a vital tool offered by Excel that assists in the decision-making process in the financial sector.
It is particularly important as it enables users to backtrack and define input values that would lead to a desired outcome.
Essentially, users are given the flexibility to “set” a targeted value for a particular cell, and Excel then automatically adjusts the value of another cell to achieve that goal.
This allows for a myriad of financial applications such as determining the investment amount needed to achieve a specified future value, identifying the interest rate necessary to reach a certain investment goal, fine-tuning budgets, or optimizing product pricing strategies.
Thus, Goal Seek aids in financial planning and forecasting, resultantly leading to more informed and efficient business decisions.
Explanation
Goal Seek in Excel is an invaluable tool employed for scenario analysis and problem-solving purposes within the realm of finance. The main purpose of Goal Seek is to find an optimum value for a target variable by adjusting an input value, all while assuming other variables are held constant. Essentially, it helps to evaluate the impact of altering one variable on a dependent variable in a financial model.
It provides a simplistic yet efficient method to reverse engineer the values needed to attain a specific target. It’s particularly useful in tasks like preparing budgets, analyzing investment strategies, and fine-tuning financial models. For example, consider a financial analyst looking to determine the growth rate needed to achieve a specific net income in a company’s financial forecast.
With traditional methods, the analyst might manually adjust the growth rate until they land on the desired net income. However, with Goal Seek, they can simply set the desired net income as the ‘goal’ and the growth rate as the ‘variable to change’, and Excel will automatically perform the iterations to find the required growth rate. The analyst can then assess whether this growth rate is realistic or adjust their expectations accordingly.
Therefore, Goal Seek allows for meaningful sensitivity analysis and helps influence strategic financial decisions.
Examples of Goal Seek in Excel
**Managing a Budget:** Suppose you have a monthly budget for personal expenses. However, you realize that you are consistently exceeding your budget. To fix this, you can use Goal Seek in Excel to determine which expenses need to be reduced. By setting your total monthly budget as the goal, Excel would seek a new value for defined variables such as food expenses, entertainment expenses, etc., helping you better manage and stick to your budget.
**Making Investment Decisions:** Let’s consider a situation where you want to save a certain amount in 5 years by investing in mutual funds. The return rate somewhat fluctuates and isn’t predictable. You could use Goal Seek to find out what rate of return you would need to reach your desired savings goal. By having your desired amount as ‘set cell,’ the ‘changing cell’ would be the return rate.
**Loan Repayment Planning:** You can use Goal Seek when planning your loan repayment. For example, if you want to determine how many months it would take you to pay off a loan given a specific monthly payment, you would set your loan balance as the set cell with a goal of $0, and allow Goal Seek to adjust the monthly payment amount in the payment formula. This can help you plan your finances better and ensure your loan is paid off within your desired timeframe.
Frequently Asked Questions about Goal Seek in Excel
What is Goal Seek in Excel?
Goal Seek is a built-in Excel function that allows you to solve problems by adjusting the value of one cell in order to reach a desired output in another cell. It’s a convenient tool for solving for a specific value when you’re not sure what input value will produce that result.
How can I use Goal Seek in Excel?
To use Goal Seek in Excel, first, you need to setup a formula that links two or more cells. Then, go to Data tab, and under Forecast group, click on ‘What-If Analysis’ and choose ‘Goal Seek’. Set the parameters for ‘Set Cell’ (the cell you want to change), ‘To Value’ (the desired result), and ‘By Changing Cell’ (cell to be adjusted), and click ‘OK’.
Where can I find the Goal Seek function in Excel?
Goal Seek can be found under the ‘What-If Analysis’ option that sits in the ‘Data’ tab and ‘Forecast’ group of the Excel tool ribbon.
Can I use Goal Seek in Excel with multiple cells?
No, the Goal Seek function in Excel can only change the output of a single cell. However, you can run Goal Seek multiple times or explore other tools like ‘Solver’ for complex calculations that require changing multiple input cells.
What are some use cases for Goal Seek in Excel?
Goal Seek is useful for a wide variety of financial and non-financial applications. You can use it to determine the interest rate for a loan, the future value of an investment, the required sales to meet a profit target, or even the average score required in your remaining tests to achieve your desired overall grade.
Related Entrepreneurship Terms
- Backsolving
- Excel Spreadsheet Functions
- What-if Analysis
- Data Reconciliation
- Scenario Manager in Excel
Sources for More Information
- Microsoft Office Support: This is the official site from the creators of Excel. They provide articles, videos and tutorials about all Excel features, including Goal Seek.
- Excel Easy: This is a website offering free tutorials about Excel, including detailed information on how to use the Goal Seek function.
- Dummies: The Excel section of this site offers easy-to-follow guides on various Excel features. The Goal Seek function is covered in depth.
- Contextures: This website could serve as a reliable source for Excel tips and tutorials, and Goal Seek is one of the topics covered.
