Mastering the Art of Creating a Powerful Excel Waterfall Chart

Creating an excel waterfall chart is a great way to visualize financial data showing gains, losses, and cumulative totals over time. This powerful chart type can bring context to data and tell a story. Read on to master the art of making impactful waterfall charts in Excel.

Why Use a Waterfall Chart?

Waterfall charts are a tool for visualizing how an initial value is affected by positive and negative changes to arrive at a final value. This type of chart shows intermediate sums along the way and provides context to the data. Waterfall charts are commonly used to show financial statements and how you get from a starting net value to an ending net value based on various gains and losses.

Waterfall charts bring clarity and context to large amounts of data that can be hard to interpret otherwise. By seeing the cumulative total change as you move along the chart, you get a better sense of the overall impact of individual data points. The columns showing gains as greens and losses as reds also make the good vs bad very clear visually.

What Does a Waterfall Chart Show?

A typical waterfall chart shows both positive and negative values on a vertical bar chart with intermediate sums connecting each data point. Each vertical bar represents a specific positive or negative change, while the horizontal connector lines display the cumulative running total at that point in the sequence.

Waterfall charts show how an initial value or data point is increased and decreased by intermediate values to arrive at a final value. The initial point starts on the horizontal axis, then subsequent values are added or subtracted vertically showing whether they contribute positively or negatively to the cumulative total.

How Is a Waterfall Chart Constructed?

To construct a basic waterfall chart, data is required in vertical columns with at least:

• An initial data point value

• Intermediate values that are positive or negative changes

• A column showing the cumulative running total at each step

• A final sum or total data point

The initial point anchors the chart on the horizontal axis. Vertical bars represent each intermediate value as it adds to or subtracts from the previous total. Horizontal connector lines join each vertical bar, displaying the cumulative running total value up to that point.

A final column shows the end total which the waterfall chart leads to after all the previous gains and losses. Labels explain what each data column represents in the waterfall sequence. Once the basic data table is prepared, creating the chart visualization in Excel is simple.

What Does a Waterfall Chart Look Like?

A waterfall chart has a distinct look. Vertical columns show gains as green and losses as red. Horizontal connector lines join the columns and display the cumulative running total at each intermediate stage.

The first column starts on the horizontal axis, then subsequent values build up or down from there. The final value ends at the total sum amount which the rest of the chart leads to. This provides the visual connection showing how each intermediate piece contributes to the final value.

How to Make a Waterfall Chart in Excel

Making a waterfall chart in Excel only takes a few steps once your data is formatted properly. Here is a quick overview:

1. Input data with columns for initial, intermediate, and total values

2. Highlight data table

3. Go to "Insert" tab and select the waterfall chart option

4. Edit visual elements like data labels, colors, and titles

The key is getting your data structured correctly before inserting the chart. Excel will automatically plot the initial and intermediate values vertically, with connector lines showing running totals at each stage. Formatting the visuals takes the waterfall chart to the next level.

How to Format a Waterfall Chart

Making basic Excel waterfall charts is easy, but formatting and customizing the visuals take them to the next level. Some key formatting touches include: 

• Data labels to explain what each column shows

• Columns colors (green for gains, red for losses)

• Bold horizontal connector lines showing cumulative values

• Axis labels explaining the units

• A descriptive chart title

Playing around with different format options can make waterfall charts more clear and impactful. Sort the data bars visually in a logical way and emphasize key elements like the totals. This helps direct the viewer's attention.

Tips for Impactful Excel Waterfall Charts

Creating waterfall charts is one thing, but constructing truly impactful charts that tell a compelling data story takes some finesse. Here are tips for waterfall chart best practices:

• Sort data bars logically from largest to smallest values

• Emphasize cumulative total connector lines

• Use data labels and consistent formatting for clarity

• Make gains green and losses red for easy identification

• Explain initial/final values clearly on the axis scales

• Add context with subset sums or intermediate totals

Common Uses of Waterfall Charts

Waterfall charts shine for financial statements, budget forecasts, inventory reports, cash flows, and any sequence of gains and losses over time. They transform messy sheets of data into clear visual stories.

Specific examples include:

• Monthly department budget performance tracking actual vs forecast

• Showing production numbers with gains and losses vs targets

• Displaying the bridge from one year's net income to the next

• Breaking down how much different factors contribute to a revenue increase

• Flow of funds statements in finance and accounting

Wherever cumulative gains and losses are important, waterfalls add clarity. The chart type has become increasingly popular because it fills this need so effectively.

Alternatives to Waterfall Charts

Though waterfall charts are very effective for sequential and cumulative data, there are a few alternatives to consider for different data stories:

• Column charts - Simple categorical frequency comparisons

• Line charts - Temporal trends over time 

• Combo charts - Combine columns and lines

• Gantt charts - Visualize project timelines

• Sparklines - Mini data visualizations embedded in cells

The key is matching the chart type to the specifics and intentions of your data. Waterfall's strength is the running total view of intermediary effects leading to an end. There are many other options for simple before/after comparisons or purely sequential data without the cumulative view.

Things to Remember

Mastery of waterfall charts unleashes a powerful, flexible tool for data visualization. Keep these things in mind: 

• Waterfalls excel at sequential, cumulative values over time or stages

• Proper data formatting is key before inserting waterfall chart

• Customize formatting and styles for clarity and impact

• Emphasize key elements like cumulative totals and end values

• Add context with subsets, intermediate sums and data labels

• Match chart type to intention - understand alternatives like column charts  

With the right data and some practice, waterfall charts enable simple, impactful Excel data visualization anyone can learn.