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What’s the difference between a Formula and a Function in Excel?

15 January, 2016

Ever been guilty of using Excel as a fancy calculator?  If so, you’d just be using a formula in Excel.  If you entered a calculation such as =A1+A2 or =452*12, then that's just a formula.  If a formula is all you need, then that's fine.  But Excel can do so much more!

To date, Excel has got over 400 pre-defined formulas already in Excel such as IF, SUM, VLOOKUP, INDEX to name a few.  And every time they release a new version of Excel, they add more! Although they help you to write formulas, these are technically referred to as functions. Functions can do very complicated calculations that would be very time-consuming to build manually.  For example, if you wanted to add up a range of cells without using a function, you’d need to write something like: =A1+A2+A3+A4+A5 instead of =SUM(A1:A5).  As you can see, functions make things a lot easier and are basically the whole point of using Excel.

So in summary, a formula is any calculation in Excel, but a function is a pre-defined calculation.

For example:
=A1/A2 is just a formula
=MAX(A1:B20) is a formula containing a function.

Mastering the use of functions in formulas is a key skill in learning financial modelling.  Happy formula-writing!



1. Daniel Chow Says:

May 26th, 2009 at 6:56 pm edit

Hey - just so you know - you do not need to become a member of Finance 3.0 in order to view this discussion, or other discussions and blogs on the website.

You would only need to register to respond to discussions, download attachments (such as Excel templates and PDF documents), write blog posts, and access other applications and features available only to members.
2. Danielle Stein Fairhurst Says:

May 26th, 2009 at 8:13 pm edit

Thanks Daniel. Toby has posted some useful PDFs on the subject. Becoming a member is free anyway and I highly recommend it!
3. Rickard Warnelid Says:

May 27th, 2009 at 4:28 pm edit

Hi Danielle,

I agree that this is a topic that people often get confused about so thanks for clarifying.

I also like that you write ‘formulas’ instead of ‘formulae’! I haven’t really had the confidence to use ‘formulas’ at all times, but will do from now on.

4. rayalukkv Says:

July 7th, 2009 at 1:18 am edit

do explain how the excel tax calculator works
what is the formula in the column “d”
which hided
5. Danielle Stein Fairhurst Says:

July 7th, 2009 at 10:27 am edit

That file is protected, if you would like the password, please email. With the password, you can unhide the column and see what the formula is doing. This file was built to demonstrate the use of a progressive tiering formula in financial modelling.

This file can be downloaded at www.plumsolutions.com.au/articles/20082009-excel-income-tax-calculator.

Submitted by danielle on Thu, 20/08/2009 - 17:11.


What is the difference between function and formula in excel?

Please send an answer with example.




& Regards

Basavaraj K H

Submitted by Basavaraj K H (not verified) on Tue, 05/06/2012 - 23:12.

Hi Basavaraj,

A function would be something like =SUM(A1:A2) whereas a formula would simply be =A1+A2.  In order to be using a function, you need to use the predefined functions created in Excel, not just a mathematical calculation.

I hope that makes sense!


Submitted by danielle on Wed, 06/06/2012 - 21:03.

What is the differce between compound and basic formula??

Submitted by Anonymous on Sun, 11/12/2016 - 01:01.

HI I have a question if any one can help please do so here is my question what is the different between =SUM(A1:A4) and =SUM(A1+A4) THANK YOU

Submitted by Anonymous on Sun, 23/04/2017 - 03:43.

You can try this out for yourself in Excel. =SUM(A1+A4) add together ONLY the values in A1 and A4, whereas =SUM(A1:A4) adds A1, A4 and everything in between.

Submitted by danielle on Sun, 23/04/2017 - 18:38.

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