Goal Seek in Excel: Explained
In this article you will learn how to use the Goal Seek function in excel
What are some uses of the Goal Seek function in excel?
The Goal Seek function in Excel has several practical uses across various industries and scenarios. Here are some common applications:
- Financial planning and forecasting: Goal Seek is helpful for financial planning and forecasting scenarios. It enables you to determine the necessary input value to achieve a specific financial target, such as a desired net income, sales volume, or return on investment.
- Break-even analysis: In break-even analysis, you can use Goal Seek to identify the sales volume or price needed to reach a break-even point where total revenue equals total costs. By specifying a desired break-even point, Goal Seek can determine the necessary sales volume or price to achieve it.
- Optimization problems: When dealing with optimization problems, Goal Seek can be a useful tool. It allows you to set a target for an objective function and find the input values that maximize or minimize that objective.
- Scenario analysis: Goal Seek enables you to perform scenario analysis by testing different assumptions and evaluating their impact on the output. You can specify multiple target outputs and use Goal Seek to determine the input values that achieve those targets, thereby exploring different scenarios and their corresponding results.
These are just a few examples of the practical uses of the Goal Seek function in Excel. It is a versatile tool that helps in decision-making, financial analysis, planning, and optimization by finding the input values necessary to achieve specific goals or targets.
What does the Goal seek function in Excel do ?
The Goal Seek function in Excel is a powerful tool that allows you to find the input value required to achieve a specific goal or target output in a formula. It is particularly useful when you know the desired result of a calculation and want to determine the input value that will produce that result. The Goal Seek function is commonly used in financial analysis, scenario planning, and forecasting.
How to use the Goal Seek Function in Excel
Suppose you want to determine the break-even point for your product in terms of the number of units sold to cover all fixed and variable costs and start generating a profit. You have the cost and pricing information and need to calculate the break-even point using the Goal Seek function in Excel.
Assumptions:
Fixed Costs: The company has fixed costs of $50,000, which include rent, salaries, and other overhead expenses.
Variable Costs: The variable cost per unit is $20, which includes direct material and labor costs.
Selling Price: The selling price per unit is $50.
Target: The company wants to determine the break-even point in terms of the number of units sold.
Step 1: Set up the calculation that produces your product's desired profit and loss as shown above.
Step 2: Go to the "Data" tab in the Excel ribbon and click on the "What-If Analysis" button.
Step 3: From the drop-down menu, select "Goal Seek" The Goal Seek dialog box will appear. In the Goal Seek dialog box:
- Set the "Set cell" field to the target cell that contains the Profit/Loss calculation. In our example this is Cell B9
- Enter the desired value or result in the "To value" field to 0 given Profit/loss at Break-even point is 0
- Enter the Units Sold of the input cell in the "By changing cell" field.
- Click "OK" to initiate the Goal Seek calculation.
Excel will attempt to find a solution by adjusting the value in the input cell - Units Sold- iteratively. Once Excel finds a solution, it will display a message indicating whether a solution was found. If a solution is found, you can choose to accept it, which will update the input cell value accordingly.
The Goal Seek function helps you perform reverse calculations by allowing you to determine the input value necessary to achieve a specific target output. It is a handy tool for performing "what-if" analysis and making data-driven decisions based on desired outcomes.
