Forecasting Financial Statements

Steps
1. Capture historical income statement and balance
2. Calculate key historical ratios
3. Extrapolate future ratios
4. Project future income statement and balance she
5.Project future cash flow statement
6. Link cash balance to integrate financial statemen
ment and balance sheet

and balance sheet

nancial statements
Historical and Forecasted Income statement and Balance sheet
U$ bn

Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 F

Revenues 447 469 476 486 482
Cost of goods sold 327 344 349 356 352
Gross profit 120 125 127 130 131
SG&A expenses 85 89 91 93 97
Depreciation 8 8 9 9 9
EBIT 26 28 27 27 24
Interest expense 2 2 2 2 2
EBT 24 26 25 25 22
Provisions for taxes 8 8 8 8 7
Profits after tax 16 18 17 17 15

Balance Sheet - Assets Year 1 Year 2 Year 3 Year 4 Year 5 F

Inventory 41 44 45 45 44
Accounts Receivables 8 8 9 9 7
Cash 7 8 7 9 9
Total current assets 55 60 61 63 60

Plant and Machinery 112 117 118 117 117

Other long term assets 26 26 26 24 23
Total assets 193 203 205 203 200

Balance Sheet - Liabilities and equity Year 1 Year 2 Year 3 Year 4 Year 5 F
Short term debt 6 13 12 7 6
Accounts payable 37 38 37 38 38
Other short term liabilities 19 21 20 20 20
Total current liabilities 62 72 69 65 65

Long term debt 47 41 45 43 44

Other long term liabilities 8 8 10 9 7

Common equity 76 82 81 86 84
Total liabilities and equity 193 203 205 203 200
Check 1 1 1 1 1
Year 6 F Year 7 F Year 8 F Year 9 F Year 10 F

Year 6 F Year 7 F Year 8 F Year 9 F Year 10 F

Year 6 F Year 7 F Year 8 F Year 9 F Year 10 F

0 0 0 0 0
1 1 1 1 1
Forecasted Cash flows statement
U$ bn

Cash flow statement Year 6 F Year 7 F Year 8 F Year 9 F Year 10 F

Cash flow from operations
Net Profits after tax
Add: Depreciation
Add: Interest expense
Add: Increase in accounts payable
Add: Increase in other short term liabilities
Less: Increase in inventory
Less: Increase in accounts receivables
Less: Increase in other short term assets

Cash flow from investment

Less: Capex in plant and machinery
Less: Increase in other long term assets
Add: Increase in other long term liabilities

Cash flow from financing

Add: Net new equity raised
Add: Net new debt raised
Less: Interest expense

Net cash flows

Opening cash balance
Closing cash balance
Key historical and forward looking ratios
Percent

Income Statement ratios Year 2 Year 3 Year 4 Year 5 F

Year on year revenue growth
Cost of goods sold as % of revenues
SG&A expenses as % revenues
Depreciation expenses as % of opening plant & machinery
Interest expenses as % of opening total debt
Effective tax rate as % of pre-tax profit

Balance Sheet ratios

Inventory as % of total revenues
Accounts Receivables as % of total revenues
Plant and machinery as % of total revenues
Accounts payables as % of total cost of goods sold

Other assumptions:
1. Other assets and liabilities are not core to the business and hence can be assumed to remain unchanged.
2. Management has given a guidance to not take on any additional short term and long term debt in future.
 Year 6 F Year 7 F Year 8 F Year 9 F Year 10 F

unchanged.
bt in future.