The Financial Modelling Handbook offers guidance on calculating reserve account target balances using the MMULT function, emphasizing the importance of collaboration in financial modelling. It provides solutions to common issues, such as the #VALUE! error caused by referencing blank cells, and discusses alternatives to MMULT, including using SUMPRODUCT with TRANSPOSE. The document serves as a comprehensive resource for building more effective financial models.

1. Financial Modelling
HANDBOOK
Calculating
RESERVE ACCOUNT
TARGET BALANCES
using MMULT
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2. “There occurs the
beautiful feeling that only
humanity together is the
true human being, and
that the individual can be
cheerful and happy only if
he has the courage to feel
himself in the Whole.”
JOHANN WOLFGANG VAN GOETHE

3. ABOUT THE FINANCIAL
MODELLING HANDBOOK
Financial modelling should be collaborative. Collaboration
reduces error, speeds up development time and lowers
cost. The Financial Modelling Handbook is a collaborative,
crowd-sourced guide to building better financial models
using the FAST Standard.
www.financialmodellinghandbook.com/contribute

4. Financial Modelling
HANDBOOK
DHRUVA
Dhruva Poonia manages F1F9’s
modelling team. He has been
working with FAST models since
2006 and has a great breadth of
experience of financial modelling
for projects across different
sectors.
financialmodellinghandbook.com

5. Financial Modelling
HANDBOOK
Calculating
RESERVE ACCOUNT
TARGET BALANCES
using MMULT
Sometimes we need to multiply a vertical range of numbers
by a horizontal range of numbers. This requirement occurs
frequently in project finance in calculating reserve account
balances.
This modelling guide shows you how to use the MMULT
function effectively for this requirement
DOWNLOAD THE EXCEL FILE THAT
ACCOMPANIES THIS MODELLING GUIDE

6. Financial Modelling
HANDBOOK
REQUIREMENT
In this model extract we are required to create a reserve for future costs.
For example in Cell K52 we need to do the calculation (100% x 100 + 50% x
200 + 20% x 300 + 0% x 400).
If both of the ranges are in column or in row format, we could use the
SUMPRODUCT function. However, this function does not work when one
range is in column and the other in row format. This modelling guide explains
how to solve this problem using the MMULT function.
financialmodellinghandbook.com

7. Financial Modelling
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HANDBOOK
GATHER THE DATA
1
2
1
Link to the inputs for ‘Percentage of
cost to reserve’ at the top of the
calculation block.
2
Link to the input or calculated lineitem of ‘Periodic costs’.

8. Financial Modelling
financialmodellinghandbook.com
HANDBOOK
WRITE FORMULA USING MMULT
4
3
3
The requirement is for a 1 x 1 matrix
(single cell value). We therefore need to
multiply a 1 x 4 matrix (row ingredient is
‘Periodic costs’) by a 4 x 1 matrix
(column ingredient is ‘Percentage profile
inputs’). The multiplication must be done
in that order.
4
The first array to be entered is the next
4 cells of ‘Periodic costs’ line
(K50:N50). The second array is the
range of column inputs for percentage
profile ($F46:$F49).

9. Financial Modelling
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HANDBOOK
WRITE FORMULA USING MMULT
5
5
We have column anchored the second range. This will
allow us to copy the formula across the full row, while
ensuring that all formulas continue to to refer to Column F.

10. Financial Modelling
HANDBOOK
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NOTE #VALUE PROBLEM
6
6
The formula gives us the correct value for the reserve target
balance until we have 4 future periods left in our model. When
we reach the fourth column from the end of our timeline, the
current MMULT function presents a #VALUE! error.
The reason for this is that the formula in cell AA52 (and
onwards), refers to the cells beyond column AD, which are
outside our timeline (and hence hidden here) and these cells
are empty.

11. Financial Modelling
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HANDBOOK
SOLVE #VALUE PROBLEM
7
7
The #VALUE! error is caused by referencing blank cells. This
problem is specific to MMULT. Most other commonly used
Excel functions treat a blank cell as ‘0’ (zero) value.
To solve the #VALUE! error we need to add ‘0’ (zero) to the
first array (row ingredient is ‘Periodic costs’). Once this is
done, MMULT will also consider any blank cells in that array
as ‘0’ (zero) value.

12. Financial Modelling
HANDBOOK
ALTERNATIVES TO
MMULT
In Excel there are always multiple ways to achieve the
same result. We’ll look now at some of the alternatives to
MMULT.

13. Financial Modelling
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HANDBOOK
ARITHMETIC CALCULATION
1
1
This is the most basic way to calculate the
required output.
The weakness of this approach is that it is
harder to maintain, and is more prone to
errors.

14. Financial Modelling
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HANDBOOK
SUMPRODUCT WITH TRANSPOSE
1
2
1
We can get around the limitations of
SUMPRODUCT in this situation by
using it in conjunction with
TRANSPOSE.
2
For this to work our calculation has
to be entered as an array formula.
This has a number of drawbacks
that we will explore another time.

15. Financial Modelling
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HANDBOOK
SUMPRODUCT ALTERNATIVE
1
2
1
We can use SUMPRODUCT if we
can get the required values in
column format from their current
row format. However, this approach
is not standard and is also harder to
update and maintain.
2
For this to work we need to link the
cells from row 35 in the current
column i.e. the formula in cell K36
is ‘= L35’ and in cell K37 is ‘= M35’
and so on.