GUIDELINE – MONTE-CARLO-SIMULATION WITH

XL STAT
1 Necessary installations
a) Download XLSTAT on the website xlstat.com and install the 14-day test version.

https://www.xlstat.com/en/download

Please make sure you have a notebook or laptop with windows on it and a current excel version.
(Excel 2010/2013/2016 should also be sufficient)

b) Please add XL Stat to the trusted sources in Excel

a. Click the "File" tab on the left of the Excel Ribbon.
b. Click "Options" on the left Menu.
c. The "Excel Options" window will appear. Select "Trust Center" in the middle of the
menu bar on the left.
d. Click on the "Trust Center Settings..." button on the right of the window.
e. The "Trust Center" window will appear. Select "Macro Settings" in the middle of the
menu bar on the left. Select also the 2nd option for the "Macro Settings".
f. Activate the Option "Trust access to the VBA project object model".
g. Click OK to close the "Trust center" window, then click OK to close the "Excel options"
window.
h. If you do not want to see this message anymore, please change the corresponding
option in the XLSTAT options panel (see the "Outputs" tab).

2 Analysis of the model

The Excel shows the simulation model. In our case, a simulation of the operating profit for the year
based on the current Income Statement is to be carried out.

3 Determination of input variables

Next, we have to determine the input variables which should be simulated and for which we have to
define a distribution. In our case input variables are: Revenue, Cost of revenue and operating expenses.

In the first step we want to define the variable “Revenue”:

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Please click first into the cell, where the amount of revenue is located (Here: Cell D8). The select
“Advanced Features”  “Monte Carlo simulations”  “Define a distribution”.

In the next step you have to define the parameters for the distribution of “Revenue”

1. As “Variable name” you click into the cell, where “revenue” stands (here: C8). Excel then uses
this as variable name.
2. Then you have to select the distribution.
a. Excel offers various types of distributions. In our case we select a “normal” distribution
for revenues.
b. For this normal distribution different parameters have to be defined:
i. As expected value (mu), we select the mean of the estimation of the 5 experts
(Here: 1640).
ii. As standard deviation (sigma), we select the standard deviation of the
estimates of the 5 experts. (Here: 207)
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 iii. Then we have to define the truncation. As revenue cannot be below zero, zero
is the absolute minimum. In our case, we believe our experts and select the
minimum value of the 5 experts (Here: 1400)

The same steps have to be done for “Cost of revenue” and “Operating Expenses”. For “Operating
Expenses” we have less knowledge about outcomes and select a triangular distribution. Here a is the
minimum value (100), the mode is the most likely value (here 210) and b) is the maximum value (Here:
300). Truncation is not necessary as the triangular distribution already involved a minimum and
maximum value.

The other variable “Gross Profit” is a result of the other variables and must not be simulated.

As last step we have to define the result variable “Operating Income”.

Click in the filed with the value for “operating income” (Here: D12). Go to “Advanced Features” 
“Monte-Carlo-Simulation”  “Define a result variable”.

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Then you have to name the field. As “variable name”, click into the field with the name “Operating
Income” (Here: C12)

4 Running the simulation

Final step is to run the simulation.

Go to “Advanced Features”  “Monte-Carlo-Simulation”  “Run”.

XL STAT then offers different options:

1. “General”
a) Here you have to define the number of simulation runs. Usually 1.000 runs is enough and
selected.
b) The correlation matrix is more important. Usually the input variables are correlated. E.g.,
when revenue is high usually also the cost of revenue is high. To get better results, we have
to define the correlations of variables. Therefore we mark the table, where correlations
are defined. Please also click “Labels included” to include headings. (Here: C21:F24).

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 2. In the sheet “Output” we can define the descriptive statistics we want for the simulation.
Please just keep the default settings.
3. In the sheet “Charts” you can select the charts you want to have as output. Histograms are
normally included. Very helpful is also the “Cumulative Histogram”, so please also click that.
“Statistics for the intervals” can also help, so please click.

5 Analysis of results
Simulation results – Input variables (Cell B 36)

1) Here we get some descriptive statistics about our input variables. E.g. we see minimum and maxium
values which are close to the value we have defined before

Simulation results – Output variables (Cell C 341)

1) Parameters
a. Here we see the results of our simulations, which is more interesting for us. First seem
descriptive statistics are displayed, e.g. the number of observations (here 1.000 runs),
minimum, maximum and mean values for “Operating Income” and so on.

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 2) Quantiles and box-plots
a. More interesting are the “Quantiles” and “Box Plots”. They show us the probability of
certain results. The box plot for example shows us the different parameters in a figure.
E.g. the mean result for operating income will be around 600 (precise: 617,452) and
50% of the values will be around 466 and 759. The absolute highest value for
“Operating Income” in the simulation was 1.242, so it is very unlikely that the company
will have more than this value.

Box plot (Operating Income)

1400

1200
Operating Income

1000

800

600

400

200

3) Histogram and cumulative distribution

a. Most important are these figures.
b. The histogram shows the distribution of different values of “Operating Income”. We
can see that most of the results of the run are around 600-700. This is not surprising
as we have defined the expected value for “operating income” (starting value) with
630 (=1.640 – 840 – 210). Furthermore we can see, that operating income is never
negative and the maximum is a little more than 1.240.

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c. The cumulative distribution then helps us, to answer the question: “What is the
likelihood of achieving at least a profit of 600?” Looking at the cumulative distribution
you can see the cumulative relative frequency shows a value of about 0,47 or 47% for
an operating profit of 600. That means, that ca. 1-0,47= 0,53 or 53% of all values of
the simulation lie above 600. So we can say that with a likelihood of ca. 53%, we will
achieve an operating profit of 600 or more.

d. If you want to have an exact value for that, we can also look at the descriptive statistics
for the intervals. Here we see the empirical likelihood, that values fall within a certain
range or interval. E.g. the likelihood that the operating profit is between 182 and 208
is 0,6%, the likelihood that operating profit falls within the range of 624 to 650 is 5,5%.
When you want to determine the likelihood is between 0 and 600 you can sum up the
relative frequencies of the different intervals.

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 E.g. the likelihood of achieving an operating profit between 0 and 598 is 46,9%.
Otherwise stated: The likelihood to achieve an operating profit of 598 or more is 1-
0,469= 0,531 = 53,1%. This is equivalent of what we have seen in the cumulative
distribution from above.
e. On a lower bound, if you want to determine a result that is achieved with 90%
likelihood, you can sum up the values in the column “relative frequency” starting from
zero in the lower bound (Cell E 444) until 0,1 is achieved. Here in Cell C 456 the
cumulative frequency is 0,092 or 9,2%. So with a likelihood of 90,8%, the operating
result will be at least 338, because 90% of the results are higher than 338.