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Lesson 3.1 – How Formulas Work

Lesson 3.1 – How Formulas Work

Formulas are the core of Excel. They allow you to perform calculations, analyze data, and automate tasks. Every formula in Excel follows a simple structure and always begins with an equal sign (=). Understanding how formulas work is essential before learning specific functions.

1. The Structure of a Formula

All Excel formulas follow this basic pattern: 

=operand operator operand

Example:

  • =5 + 3
  • =A1 * B1
  • =SUM(A1:A10)

Excel calculates the result and displays it in the cell, while the formula remains visible in the Formula Bar.

2. The Equal Sign (=)

Every formula must start with =. Without it, Excel treats the entry as text.

Examples:

  • =10+5 → Excel calculates
  • 10+5 → Excel shows “10+5” as text

3. Operators in Excel

Operators tell Excel what type of calculation to perform.

Operator Meaning Example
+ Addition =A1 + B1
- Subtraction =A1 - B1
* Multiplication =A1 * B1
/ Division =A1 / B1
^ Exponent =A1 ^ 2

4. Order of Operations (PEMDAS)

Excel follows a specific order when calculating formulas:

  1. Parentheses
  2. Exponents
  3. Multiplication and Division
  4. Addition and Subtraction

Example:

=2 + 3 * 4

Excel calculates 3 * 4 first → result = 14 To force addition first: 

=(2 + 3) * 4

Result = 20

5. Cell References

Instead of typing numbers directly, formulas usually refer to cells.

Examples:

  • =A1 + B1
  • =A2 * 10
  • =SUM(A1:A10)

This makes formulas dynamic — if the cell value changes, the formula updates automatically.

6. Formula Errors

Excel displays error codes when something goes wrong.

Error Meaning
#DIV/0! Division by zero
#VALUE! Wrong data type
#NAME? Misspelled function
#REF! Invalid cell reference

7. Practical Exercise

Practice basic formulas with the following steps:

  1. Create a worksheet named Lesson_3_1_Practice.
  2. Enter numbers in cells A1, A2, A3.
  3. Create formulas for addition, subtraction, multiplication, and division.
  4. Use parentheses to change the order of operations.
  5. Experiment with cell references instead of typing numbers.
  6. Trigger and fix a #DIV/0! error.

Next Lesson

Lesson 3.2 – Relative vs Absolute References

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