Here we are in the calculation section of the model. And what we need to do is calculate our interest. If I scroll down, I can see that I've got three types of interest to calculate. Interest on short-term borrowings, on long-term debt, and on cash and cash equivalents.

Normally, I'd start from the top and work my way down, but the short-term borrowings was zero. So instead, let's start with the long-term debt. I'm going to need a long-term debt from last year and this year, and we'll calculate the interest on the average of the two. So in column E, I'm gonna go and grab the long-term debt from the balance sheet. There it is. It's 25. And I'll just copy that to the right. Brilliant. Next, I need an interest rate. I'll get that from the assumptions tab. Scroll down. My long-term debt interest rate is 5.5%.

Lastly, then, I need to take that interest rate and multiply it by the average and multiply it by the average of last year's debt and this year's debt, getting the interest of 1.2. Now, when that and the other two interest items go into the income statements, because of that average, it's gonna create a circular. That's okay, we'll deal with that shortly. I need to do pretty much the same thing for cash. So find cash on the balance sheets. Copy it right. Find the interest rate on the assumptions tab.

And I could just copy my long-term debt interest expense formula down. So let's do that. Let's copy and then paste. I'm just going to check that it's doing what we expected. It's taking the interest rates times by the average of the two cash items. That gets me a figure of 0.1. Lastly, let's do it for our short-term borrowings. I go for last year's figure from the balance sheet.

Zero. Copy it right. Find the interest rate from the assumptions tab. And then let's copy that long-term debt interest formula. And that's working great. So now those three interest items, two interest expenses and one interest income, they need to go up into the income statements.

So I'm here and I'm going to use an if switch to help me turn this on and off. I'm going to say if. And your switch is then normally on some kind of front page in the model. If I go to our info tab, I can see our circular switch is here. It's in row 10.

And I'm going to link to cell N10. But you might notice instead of it showing up as info N10, it shows up as the word switch. That's because we've named that cell. Okay, that's great. I'm gonna say if the switch equals a one, i.e. if that circular switch is turned on, value if I press a comma, value if true. So if it's turned on, I want the interest figures to appear. So now let's go and get those interest figures.

I scroll down and here we've got them. However, I want my interest expenses to appear as negatives. So I'm going to have my negative interest expense and then subtract my long-term debt interest expense. But then I'll add on the interest income.

So I close the bracket.

So that gives me all of my interest. I'm gonna press a comma again. And the syntax is telling me value if false. So if the switch is off, if the switch is a zero, then I don't want interest coming through and I don't want a circular to be created. Instead, I'll just want a hard-coded zero to appear. So I can now close the brackets and press enter. And because my switch is off, when I press enter, I just get a zero. Great.

So the real test will be turning it on. I'm gonna copy this to the right.

And what I now want to do is two things. I need to turn that switch on. Go to the info tab. I'm gonna turn this to a one. But as soon as I do that, Excel is gonna realize there's a circular and it gives me an error warning. Now, depending on the settings on your computer, you may not have got that error warning. If I press okay, you might notice in the bottom left of my screen, it says circular references. Yours may say calculate. So that's okay. If yours says calculate and you didn't get the warning, don't worry, just keep following along. So I said there were two things I needed to do. The first one was to turn the switch on. But at the moment, my Excel is not allowing that circular. It is saying, no, no, no, don't think so. So we need to change the settings so that it does allow it. In order to do that, I'm gonna go into file and then options.

I'll click on more, go to my options and I'll then go down to formulas. And on the right hand side here, it says enable iterative calculation.

Now I'm doing this on a Windows computer if you're using Apple, then instead at the top, you'll go to where it says Excel, then preferences. And then within preferences, it should say something along the lines of enable iterative calculations.

Cool, press okay.

And my number has worked in column F. Fantastic. I of course have to make sure that I copy all of this to the right.

Copy all of my interest figures to the right.

And now if I go back up to my income statements, all of my net interest figures have now appeared. Great stuff. Interest is working. The circular interest is working.