Goal Seek in Excel | How to become an Expert of MS Excel - Class 6 PDF Download

Introduction

Excel is a powerful tool that offers various functionalities to help users solve complex problems and perform advanced calculations. One such feature is Goal Seek, which allows you to find the input value required to achieve a specific result. In this article, we will explore Goal Seek in Excel, its applications, and provide step-by-step examples to help beginners understand and utilize this feature effectively.

What is Goal Seek?

Goal Seek is an Excel tool that allows you to determine the input value needed to achieve a desired output. It is particularly useful when you know the desired result but are unsure of the input required to obtain it. By using Goal Seek, you can reverse-engineer your calculations to find the necessary input value.

How Does Goal Seek Work?

Goal Seek operates on the principle of iteration. It starts with an initial guess for the input value and repeatedly adjusts it until the desired output is reached or until a maximum number of iterations is reached. Excel uses a numerical method called the Newton-Raphson method to approximate the solution.

Using Goal Seek in Excel

To use Goal Seek in Excel, follow these steps:
Step 1: Set up your spreadsheet with the necessary formulas and data.
Step 2: Select the cell containing the formula whose output you want to change.
Step 3: Go to the "Data" tab in the Excel ribbon and click on "What-If Analysis."
Step 4: From the drop-down menu, select "Goal Seek."
Step 5: In the Goal Seek dialog box, enter the desired value you want to achieve in the "To value" field.
Step 6: Select the cell that contains the input value you want to adjust in the "By changing cell" field.
Step 7: Click on the "OK" button.

Example 1: Finding a Loan Payment Amount

Suppose you want to determine the monthly payment amount for a loan. You know the loan amount, interest rate, and loan duration, but you are unsure about the monthly payment.
Here's how you can use Goal Seek to find the monthly payment:

1. Set up your spreadsheet as follows:
   Loan Amount: $10,000
   Interest Rate: 5%
   Loan Duration: 5 years
2. Monthly Payment Formula: =PMT(5%/12,5*12,-10000)
3. Select the cell containing the formula for the monthly payment.
4. Go to the "Data" tab, click on "What-If Analysis," and select "Goal Seek."
5. In the Goal Seek dialog box, enter the desired monthly payment amount (e.g., $200) in the "To value" field.
6. Select the cell containing the loan amount (-$10,000) in the "By changing cell" field.
7. Click on the "OK" button.

Excel will adjust the loan amount until it finds the input value that results in a monthly payment of $200. The cell with the loan amount will be updated with the calculated value.

Example 2: Determining Required Sales Volume

Suppose you own a business and want to determine the minimum sales volume required to achieve a specific profit target. You know the profit margin and the fixed costs, but you need to find the required sales volume.
Follow these steps:

• Set up your spreadsheet as follows:
  Fixed Costs: $10,000
  Profit Margin: 20%
  Sales Volume Formula: =Fixed Costs / (1 - Profit Margin)
• Select the cell containing the formula for the sales volume.
• Go to the "Data" tab, click on "What-If Analysis," and select "Goal Seek."
• In the Goal Seek dialog box, enter the desired profit target (e.g., $5,000) in the "To value" field.
• Select the cell containing the fixed costs ($10,000) in the "By changing cell" field.
• Click on the "OK" button.

Excel will adjust the fixed costs until it finds the input value that results in a profit of $5,000. The cell with the fixed costs will be updated with the calculated value.

Tips and Tricks for Using Goal Seek

Here are a few tips to enhance your experience with Goal Seek in Excel:

• Make sure your formulas and data are set up correctly before using Goal Seek.
• Use Goal Seek iteratively by starting with a reasonable initial guess for the input value.
• If Goal Seek doesn't converge or produces unexpected results, try changing your initial guess or adjusting the maximum number of iterations.
• Save your spreadsheet before using Goal Seek, as it modifies your data.

Sample Problems with Solutions

Problem 1: You want to determine the selling price per unit to achieve a profit of $2,500. The fixed costs are $1,000, variable cost per unit is $20, and the required sales volume is 500 units.

Use the Goal Seek feature to find the selling price per unit that yields a profit of $2,500.

Problem 2: You want to determine the monthly deposit required to accumulate $50,000 in five years, assuming an annual interest rate of 6%.

Use the Goal Seek feature to find the monthly deposit needed to reach the target savings of $50,000.

Conclusion

Goal Seek is a powerful tool in Excel that enables you to find the input value needed to achieve a desired outcome. By following the steps outlined in this article and understanding the examples provided, you can leverage Goal Seek to solve various problems efficiently. With practice, you'll become proficient in using this feature to analyze and manipulate data in Excel, making your tasks more manageable and accurate.