Financial Analysis & Forecasting: Prepared by Matt H. Evans, CPA, CMA, CFM

Financial Analysis & Forecasting
Prepared by Matt H. Evans, CPA, CMA, CFM

Purpose of Spreadsheet: Revised: 11/22/2002 active Wksh2
Wksh3 Wksh4
To illustrate concepts related to financial analysis and forecasting. Wksh5 Wksh6
The financial analysis uses a combination of ratios and industry averages to Wksh7 Wksh8
evaluate the financial performance of the company. Trend line graphs are also Wksh9 Wksh10
generated, comparing the company's performance with the industry averages. Wksh11 Wksh12
Finally, the historical information is used to prepare a set of pro forma Wksh13 Wksh14
financial statements using both linear and non-linear functions. Wksh15 Wksh16
Required Inputs:
You will need to collect financial statements for several reporting periods. If you
want to benchmark the performance against the industry, then you will also need
to collect industry averages. The spreadsheet is setup to capture five reporting
periods (annual, quarterly, monthly). All input fields are highlighted in yellow.
For best results, SEC Filings are suggested since these reports provide more
detail than published financial statements.
Note: A small red triangle in the upper right corner of a cell indicates that a comment has
been inserted. Point your mouse over the cell and the comment will appear.
If a cell appears in red, this indicates a warning concerning a calculation.
Worksheets:
This spreadsheet consists of the following worksheets, divided into three sections:
A) Input Worksheets for financial analysis using historical data:
Worksheet Title Purpose

2 General Input Enter general information here - used on several worksheets.
3 Balance Sheet Enter comparative balances sheets for up to five periods.
4 Income Statement Enter comparative income statements for up to five periods.
5 Cash Flow Statement Enter comparative cash flow statements for up to five periods.
Caution: If you enter less than five years of historical information, certain worksheet
formulas may have to be revised.
B) Output Worksheets for evaluating financial performance:

6 Key Financial Data Calculates key financial information for further analysis.
7 Ratio Analysis Calculates a series of ratios for further analysis.
8 Benchmark Analysis Compare ratio analysis to industry averages.
9 Horizontal Analysis Horizontal analysis with corresponding trend lines.
10 Vertical Analysis Common size financials in percentages and graphs.
C) Pro Forma / Forecasted Financials for Budgeting:
11 Pro Forma - Simple Set of pro forma financials using simple assumptions
12 Pro Forma - Regression Set of pro forma financials using linear trending
13 Pro Forma - Exponential Set of pro forma financials using exponential smoothing
14 Scenario Analysis Example of Scenario Analysis and Goal Seek Analysis
15 Budget Analysis Preliminary budget analysis
16 Final Budgets Set of budgets per various assumptions and forecasts.
Note: Some additional worksheets (Answer Reports 1 & 2) may appear in the spreadsheet
due to the running of Solver.
Macros:
No macros have been used in this spreadsheet to give everyone some assurance that no viruses
are contained in the spreadsheet. However, you are free to add your own macros to save time.
Tools > Macro > Record New Macro
Excel Functions:
This spreadsheet uses certain financial functions (such as =TREND) which might not be
found in your version of Microsoft Excel. To take full advantage of financial and statistical
functions, you should install the Add On package titled: Analysis TookPak. Go to the main
tool bar, select Tools => Add-Ins => check the Analysis TookPak option, insert your
Excel CD and install the Analysis ToolPak. Also, you might want to install the Solver
Add-in since this is useful for solving special forecasting issues (such as finding the
optimal exponential factor).
Compatibility:
This spreadsheet was created with Microsoft Excel 2000. Older versions of Excel (such as 97)
may not be compatible with this spreadsheet.
Corrections:
With any “attempt” to build an Excel Model, I can easily make some mistakes.
So if you have suggestions to make the model better, drop me an email
and I’ll be glad to improve the financial model. My email address is: matt@exinfm.com
General Input Panel Home active
The following general information should be entered: Wksh3 Wksh4
Note: Sample data has been entered in the input cells to help you get started. Wksh5 Wksh6
Wksh7 Wksh8
2-1 Name of Company => X Y Z Corporation USA Wksh9 Wksh10
Wksh11 Wksh12
2-2 Reporting Periods => Annual (Annual, Semi-annual, Quarterly or Monthly) Wksh13 Wksh14
Wksh15 Wksh16
2-3 Number of Days in Reporting Period are 365
What reporting periods will be entered?
2-4 Most Current Period 2000 (1999, July 1998, 6/30/97, etc.)
2-5 Previous Period 1999 (1999, July 1998, 6/30/97, etc.)
2-6 2nd Previous Period 1998 (1999, July 1998, 6/30/97, etc.)
2-7 3rd Previous Period 1997 (1999, July 1998, 6/30/97, etc.)
2-8 4th Previous Period 1996 (1999, July 1998, 6/30/97, etc.)
2-9 Number of historical periods to be analyzed 5
How are the amounts expressed in the financial statements?

(such as: in millions of dollars, thousands of Canadian dollars, etc.)
2-10 millions of dollars
Balance Sheet for
X Y Z Corporation USA
millions of dollars
Annual Annual Annual Annual Annual
Period Period Period Period Period
Description 1996 1997 1998 1999 2000
Cash and Cash Equivalents 990 950 901 998 870
Short Term Marketable Securities 10 15 12 6 11
Accounts Receivable 1020 1550 1830 2250 3040
Inventory 1005 1360 1650 1900 2060
Other Current Assets 870 1150 1370 1650 1530
Total Current Assets #REF! #REF! #REF! #REF! #REF!
Fixed Assets 14006 17605 21826 26950 28100

Accumulated Depreciation -1280 -1700 -2100 -2550 -3010
Net Fixed Assets 12726 15905 19726 24400 25090
Longterm Investments 360 320 120 590 905
Investments in Other Companies 65 250 412
Intangibles and Other Assets 100 110 105 135 195
Total Non Current Assets #REF! #REF! #REF! #REF! #REF!
Total Assets #REF! #REF! #REF! #REF! #REF!
Accounts Payable 2050 3150 3290 3870 4800

Short Term Borrowings 1200 1830 2580 3100 3550
Short Term Portion of LT Debt 12 15 25 30 36
Other Current Liabilities 1050 1250 1480 1590 1301
Total Current Liabilities #REF! #REF! #REF! #REF! #REF!
Longterm Debt / Borrowings 1160 1750 2600 3600 3950

Other Longterm Liabilities 650 750 701 890 995
Total Non Current Liabilities 1810 2500 3301 4490 4945
Total Liabilities #REF! #REF! #REF! #REF! #REF!
Preferred Equity
Common Equity 2044 2005 2069 2090 2120
Additional Paid in Capital 5013 4900 5159 5626 5628
Retained Earnings 5097 7050 9840 15050 20005
Adj for Foreign Currency Transl 275 120 -550 -2147 -6722
Treasury Stock -1405 -1460 -1480 -1520 -1550
Total Shareholder Equity #NAME? #NAME? #NAME? #NAME? #NAME?
Total Liabilities & Equity #NAME? #NAME? #NAME? #NAME? #NAME?
Check: Assets = Liab + Equity ? #REF! #REF! #REF! #REF! #REF!

Comment => #REF! #REF! #REF! #REF! #REF!
NonDepreciable Fixed Assets 0 0 0 0 0

Deferred Taxes 112 101 90 98 109
Goodwill Write Off 0 0 0 0 0
No of Common Shares o/s 1,320 1,290 1,302 1,345 1,322
Par Value of Common Stock $10.00 $10.00 $10.00 $10.00 $10.00
No of Preferred Shares o/s 0 0 0 0 0
Par Value of Preferred Stock
Market Price of Common Stock $22.65 $28.90 $37.05 $33.60 $29.40
Market Price of Preferred Stock $0.00 $0.00 $0.00 $0.00 $0.00
Balance Sheet for
millions of dollars
Description 1996 1997 1998 1999 2000
Preferred Dividends in Arrears 0 0 0 0 0
Liquidating value of Preferred Stk 0 0 0 0 0
Book Value per Share #NAME? #NAME? #NAME? #NAME? #NAME?
Dividends per Common Share $1.01 $1.49 $1.89 $1.75 $1.76
Dividend Payout Ratio #NAME? #NAME? #NAME? #NAME? #NAME?
Cash Dividends to Preferred Stock
Cash Dividends to Common Stock 1330 1918 2461 2354 2329
Total Dividends Paid 1330 1918 2461 2354 2329
Income Statement for
millions of dollars
Description 1996 1997 1998 1999 2000
Net Sales 12,060 16,700 21,170 24,700 27,400
Other Operating Revenues 16 19 26 37 48
Total Revenues 12,076 16,719 21,196 24,737 27,448
Cost of Goods Sold -4950 -7050 -8233 -9050 -10150
Other Operating Expenses -11 -13 -17 -22 -28
Total Direct Expenses -4961 -7063 -8250 -9072 -10178
Selling, General & Administrative -3300 -3880 -4637 -5670 -7120
Operating Income 3815 5776 8309 9995 10150
Interest Expenses -117 -122 -216 -282 -304

Foreign Exchange (Loss) Gain
Associated Company (Loss) Gain -22
Other NonOperating (Loss) Gain 17
Income Tax Expense -790 -1005 -2050 -2105 -2660
Reserve Charges
Income Before Extra Ord Items #REF! #REF! #REF! #REF! #REF!
Extra Ordinary Items (Loss) Gain

Tax Effects of Extraordinary Items
Minority Interests 17 302 219 303 515
Net Income #NAME? #NAME? #NAME? #NAME? #NAME?
Primary EPS #NAME? #NAME? #NAME? #NAME? #NAME?

Earnings Before Int & Taxes #NAME? #NAME? #NAME? #NAME? #NAME?
Depreciation & Amortization -310 -420 -400 -450 -460
Research & Devel Expenses
Capitalized Interest Expense -16 -19 -33 -39 -30
Interest Income 4 6 11 19 27
Total Non Operating Expenses #REF! #REF! #REF! #REF! #REF!
Total Extra Ordinary Items #NAME? #NAME? #NAME? #NAME? #NAME?
Tax Rate 21.36% 17.78% 25.33% 21.67% 27.02%
Cash Flow Statement for
millions of dollars
Description 1996 1997 1998 1999 2000

Depreciation and Amortization 310 420 400 450 460
(Increase) Decrease Defer Taxes -2 11 11 -8 -11
(Gain) Loss on Sale of Assets -55 45
(Increase) Decrease Current Assets -162 #REF! #REF! #REF! #REF!
Increase (Decrease) Current Liab 206 #REF! #REF! #REF! #REF!
Cash Flow from Operations #REF! #REF! #REF! #REF! #REF!
Capital Expenditures -1455 -2750 -3880 -5220 -4108

Acquisition in Other Co's -135
Proceeds from Sales of Assets 112 35 150 182
Purchases of Investments -712 -1979 -1801 -2314 -2609
Sale of Investments 162 129 330 221 50
Other Investment Activities 33 -166 61 -12
Cash Provided (Used) from Investmts #REF! #REF! #REF! #REF! #REF!
Proceeds from Borrowings 1070 1044 1460 1880 1105

Payments on Borrowings -1112 -650 -898 -801 -961
Dividends Paid to Shareholders -1330 -1918 -2461 -2354 -2329
Proceeds from Minority Interest 5 12 7 7 8
Issue Stock / Exercise Options 195 1 45 13 6
Purchase / Retire Common Stock
Other Financing Activities -75 -12
Cash Provided (Used) from Financing #REF! #REF! #REF! #REF! #REF!
Increase (Decrease) to Cash #REF! #REF! #REF! #REF! #REF!
Beginning Cash Balance 1010 990 950 901 998

Ending Cash Balance #REF! #REF! #REF! #REF! #REF!
Check: Should agree to Balance Sheet #REF! #REF! #REF! #REF! #REF!
Comment => #REF! #REF! #REF! #REF! #REF!
Key Financial Data for
millions of dollars
Description 1996 1997 1998 1999 2000
EBITDA :
Income before ExtraOrd Items #REF! #REF! #REF! #REF! #REF!
Interest Expense 117 122 216 282 304
Capitalized Interest Expense 16 19 33 39 30
Income Tax Expense 790 1005 2050 2105 2660
Reserve Charges
EBITDA #REF! #REF! #REF! #REF! #REF!
EBITDA Margin #REF! #REF! #REF! #REF! #REF!
Free Cash Flow:

Operating Cash Flow #REF! #REF! #REF! #REF! #REF!
Investment Cash Flows #REF! #REF! #REF! #REF! #REF!
Preferred Dividends Paid (fixed)
Redemption of Fixed Obligations -1112 -650 -898 -801 -961
Other Critical Outlays -35 -45 -42 -30 -25
Free Cash Flow #REF! #REF! #REF! #REF! #REF!
Working Capital:
Current Assets #REF! #REF! #REF! #REF! #REF!
Current Liabilities #REF! #REF! #REF! #REF! #REF!
Working Capital #REF! #REF! #REF! #REF! #REF!
Liquid Capital:
Cash and Cash Equivalents 990 950 901 998 870
Marketable Securities 10 15 12 6 11
Notes Receivable 0 0 0 0 0
Long Term Debt -1160 -1750 -2600 -3600 -3950
Preferred Equity
Liquid Capital #REF! #REF! #REF! #REF! #REF!
The following valuation indicators are very simple and basic; they are used as quick, rough estmates.
Market Capitalization:
Market Cap - Common Stk $29,898 $37,281 $48,239 $45,192 $38,867
Market Cap - Preferred Stk $0.00 $0.00 $0.00 $0.00 $0.00
Total Market Capitalization $29,898 $37,281 $48,239 $45,192 $38,867
Present Value:
Normalized Cash Flow Weight %'s 5.00% 10.00% 15.00% 30.00% 40.00%
Normalized Cash Flow #REF!
Number of Future Periods 15
Required Rate of Return 11.00%
Present Value of Free Cash Flow #REF!
Present Value of Selling Price $315,000 <= estimated selling price $65,836
Present Value of Business #REF!
Key Financial Data for
millions of dollars
Description 1996 1997 1998 1999 2000
Revenue Multiplier:
Recent Gross Revenues 27,448
Average Competitive Rev Multiplier 3.14
Value based on Revenue Multiple $86,187
Capitalization of Earnings:
Normalized Net Income Weights % 5.00% 5.00% 25.00% 30.00% 35.00%
Normalized Net Income #REF!
Capitalization Rate 12.00%
Nominal Growth Rate 3.50%
Net Capitalization Rate 8.50%
Value based on Earnings #REF!
Operating Leverage #REF! #REF! #REF! #REF!
Financial Leverage #NAME? #NAME? #NAME? #NAME?
Total Leverage #NAME? #NAME? #NAME? #NAME?
Check Totals 0.00 #NAME? #NAME? #NAME? #NAME?

Ratio Analysis for

Title of Ratio 1996 1997 1998 1999 2000
Acid Test Ratio 0.47 0.40 0.37 0.38 0.40
Current Ratio #REF! #REF! #REF! #REF! #REF!
Operating Cash Flow to Net Income #NAME? #NAME? #NAME? #NAME? #NAME?
Liquidity Index:
Cash - Days Removed 0 0 0 0 0
Cash Balance 990 950 901 998 870
Cash Balance Total 0 0 0 0 0
Marketable Sec - Days Removed 11 12 16 15 14
Marketable Securities Balance 10 15 12 6 11
Marketable Securities Total 110 180 192 90 154
Receivables - Days Removed 34 30 31 32 36
Receivable Balance 1020 1550 1830 2250 3040
Receivable Balance Total 34257 46158 56217 72213 110751
Inventory - Days Removed 79 61 67 72 71
Inventory Balance 1005 1360 1650 1900 2060
Inventory Balance Total 79745 83261 110092 136018 146676
Other - Days Removed 16 22 26 21 19
Other Current Assets Balance 870 1150 1370 1650 1530
Other Current Assets Total 13920 25300 35620 34650 29070
Liquidity Index (Days) 33 31 35 36 38
Z Score:
1.2 x (working capital / total assets) #REF! #REF! #REF! #REF! #REF!
1.4 x (retained earn / total assets) #REF! #REF! #REF! #REF! #REF!
3.3 x (EBIT / total assets) #REF! #REF! #REF! #REF! #REF!
.6 x (market value equity / b.v. debt) 15.46 12.78 11.13 7.53 5.90
.999 x (sales / total assets) #REF! #REF! #REF! #REF! #REF!
Z Score #REF! #REF! #REF! #REF! #REF!
Receivable Turnover:
Credit Sales 11520 15750 20080 23200 26500
Average Receivable Balance 1060 1285 1690 2040 2645
Receivable Turnover 10.9 12.3 11.9 11.4 10.0
Days Required to Collect A/R 34 30 31 32 36
Inventory Turnover:
Average Inventory Balance 1,046 1183 1505 1775 1980
Inventory Turnover 4.6 6.0 5.5 5.1 5.1
Days in Inventory 79 61 67 72 71
Total Asset Turnover #REF! #REF! #REF! #REF! #REF!

Ratio Analysis for

Title of Ratio 1996 1997 1998 1999 2000
Operating Assets Ratio #REF! #REF! #REF! #REF! #REF!
Gross Profit Margin 59% 58% 61% 63% 63%
Operating Margin 32% 35% 39% 40% 37%
Net Profit Margin #NAME? #NAME? #NAME? #NAME? #NAME?
Direct Cost to Operating Revenues 41% 42% 39% 37% 37%
Capitalization Rate / Asset Return:

Net Operating Income 3000 4749 6204 7829 7408
Total Investments / Operating Assets #REF! #REF! #REF! #REF! #REF!
Capitalization Rate / Return #REF! #REF! #REF! #REF! #REF!
Return on Shareholder Equity 24% 33% 35% 33% 26%
Debt to Total Assets #REF! #REF! #REF! #REF! #REF!
Debt to Common Equity 1 1 1 1 1
Times Interest Earned #NAME? #NAME? #NAME? #NAME? #NAME?
Price to Earnings (P/E) #NAME? #NAME? #NAME? #NAME? #NAME?
Price to Book Value #NAME? #NAME? #NAME? #NAME? #NAME?
Stock Yield 4.45% 5.14% 5.10% 5.21% 5.99%

Home Wksh2 Benchmark Analysis for
Wksh3 Wksh4 X Y Z Corporation USA
Wksh5 Wksh6
Wksh7 You need to collect benchmark data on the respective industry for the subject company.
active
Wksh9 Wksh10Enter the benchmark data in the appropriate input cells. This information is used to
Wksh11 Wksh12 generate trend line graphs in this worksheet. If you do not have any benchmark data,
Wksh13 Wksh14 then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be null
Wksh15 Wksh16 in the graph and show only the company specific ratio trend.

Ref Description 1996 1997 1998 1999 2000
8-1 Acid Test Ratio - Industry 0.51 0.52 0.50 0.49 0.48
7-1 Acid Test Ratio - Company 0.47 0.40 0.37 0.38 0.40
8-2 Current Ratio - Industry 1.12 1.10 1.05 1.08 1.07

7-2 Current Ratio - Company #REF! #REF! #REF! #REF! #REF!
8-3 Receivable Turnover - Industry 8.50 8.70 8.40 8.20 8.30

7-21 Receivable Turnover - Company 10.87 12.26 11.88 11.37 10.02
8-4 Days to Collect A/R - Industry 41 39 40 41 41

7-22 Days to Collect A/R - Company 34 30 31 32 36
8-5 Inventory Turnover - Industry 4.40 4.45 4.20 4.30 4.38

7-25 Inventory Turnover - Company 4.60 5.96 5.47 5.10 5.13
8-6 Days in Inventory - Industry 86 88 81 89 82

7-26 Days in Inventory - Company 79 61 67 72 71
8-7 Asset Turnover - Industry 1.60 1.55 1.62 1.68 1.69

7-27 Asset Turnover - Company #REF! #REF! #REF! #REF! #REF!
8-8 Gross Profit Margin - Industry 55.00% 52.00% 60.00% 62.00% 63.00%
7-29 Gross Profit Margin - Company 58.96% 57.78% 61.11% 63.36% 62.96%
8-10 Net Profit Margin - Industry 20.00% 23.00% 22.00% 19.00% 20.00%
7-31 Net Profit Margin - Company #NAME? #NAME? #NAME? #NAME? #NAME?
8-11 Return on Total Assets - Industry 38.00% 36.00% 37.00% 34.00% 36.00%
8-12 Return on Total Assets - Company 30.00% #REF! #REF! #REF! #REF!
8-13 Return on Equity - Industry 26.00% 22.00% 24.00% 19.00% 20.00%

8-14 Return on Equity - Company 23.93% 33.44% 35.28% 33.42% 25.89%
8-15 Debt to Equity - Industry 35% 38% 31% 34% 32%

7-38 Debt to Equity - Company 50% 63% 63% 57% 53%
8-16 Times Interest Earned - Industry 40 38 36 39 43

7-39 Times Interest Earned - Company #NAME? #NAME? #NAME? #NAME? #NAME?
We added the following two ratios to assess if the Company has excessive growth:
4-13 Provision for Taxes -790 -1005 -2050 -2105 -2660
8-17 Trading Ratio - Company #NAME? #NAME? #NAME? #NAME? #NAME?
8-18 Trading Ratio - Industry 1.26 1.28 1.31 1.30 1.27
8-19 Net Sales to Net Worth - Company #NAME? #NAME? #NAME? #NAME? #NAME?
8-20 Net Sales to Net Worth - Industry 1.22 1.20 1.19 1.22 1.20
Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Hall
Graphs appear below for each of the above comparisons:
Acid Ratio Comparison
0.60
0.50 Acid Test Ratio
0.40 - Industry
Acid Test Ratio
Ratio
0.30 - Company
0.20
0.10
0.00
1996 1997 1998 1999 2000
Periods
Current Ratio Comparison
1.20
1.00 Current Ratio -
0.80 Industry
Current Ratio -
Ratio
0.60 Company
0.40
0.20
0.00
1996 1997 1998 1999 2000
Periods
Receivable Turnover Comparison
14.00
12.00 Receivable
Turnover -
Turnover Rate
10.00 Industry
8.00 Receivable
6.00 Turnover -
Company
4.00
2.00
0.00
1996 1997 1998 1999 2000
Periods
10.00 Industry
Turnover R
8.00 Receivable
6.00 Turnover -
Company
4.00
2.00
0.00
1996 1997 1998 1999 2000
Periods
Receivable Collection Comparison
50
Days to Collect A/R
40 Days to Collect
A/R - Industry
30 Days to Collect
A/R - Company
20
10
1996 1997 1998 1999 2000

Periods
Inventory Turnover Comparison
7.00
6.00 Inventory
Turnover -
Turnover Rate
5.00 Industry
4.00 Inventory
3.00 Turnover -
Company
2.00
1.00
0.00
1996 1997 1998 1999 2000
Periods
Inventory Days Comparison
100
Days Held in Inventory
Days in
80 Inventory -
Industry
60 Days in
Inventory -
40
Company
20
1996 1997 1998 1999 2000

Periods
Inventory -
40
Days Held i
Company
20
1996 1997 1998 1999 2000

Periods
Asset Turnover Comparison
2.00
1.50 Asset Turnover

Turnover Rate
- Industry
Asset Turnover
1.00 - Company
0.50
0.00
1996 1997 1998 1999 2000
Periods
Gross Profit Margin
70.00%
Gross Profit
Gross Profit Margin
60.00%
Margin -
50.00% Industry
40.00% Gross Profit
30.00% Margin -
Company
20.00%
10.00%
0.00%
1996 1997 1998 1999 2000
Periods
Net Profit Margin
35.00%
30.00% Net Profit
Net Profit Margin
Margin -
25.00% Industry
20.00% Net Profit
15.00% Margin -
Company
10.00%
5.00%
0.00%
1996 1997 1998 1999 2000
Periods
10.00%
5.00%
Net
0.00%
1996 1997 1998 1999 2000
Periods
Return on Total Assets
Return on Total Assets 40.00%

Return on Total
30.00% Assets -
Industry
20.00% Return on Total
Assets -
10.00% Company
0.00%
96
97
98
99
00
19
19
19
19
20
Periods
Return on Equity Comparison

Return on Common Equity
40.00%
Return on Total
30.00% Assets -
Industry
20.00% Return on Total
Assets -
10.00% Company
0.00%
96
97
98
99
00
19
19
19
19
20
Periods
Debt to Equity Comparison
70%
Debt to Equity Ratio
60%
Debt to Equity -
50% Industry
40% Debt to Equity -
30% Company
20%
10%
0%
1996 1997 1998 1999 2000
Periods
Times Interest Earned
60
Times Interest Earned
Times Interest
50 Earned -
40 Industry
Times Interest
30 Earned -
20 Company
10
0
1996 1997 1998 1999 2000
Periods
Trading Ratio Comparison
3.00
2.50
Trading Ratio -
2.00 Industry
Trading Ratio -
Ratio
1.50 Company
1.00
0.50
0.00
1996 1997 1998 1999 2000
Periods
Sales to Worth Comparison
3.00
2.50 Net Sales to
Net Worth -
2.00 Industry
Net Sales to
Ratio
1.50 Net Worth -

Company
1.00
0.50
0.00
1996 1997 1998 1999 2000
Periods
Horizontal Analysis for
Horizontal Analysis expresses change between periods as percentages for each account in
the financial statements. The basic formula for horizontal analysis is:
% change = (most recent period - previous period) / previous period

Description 1996 1997 1998 1999 2000
Growth in Net Sales 32.50% 38.47% 26.77% 16.67% 10.93%
Cost of Goods Sold 29.00% 42.42% 16.78% 9.92% 12.15%
Growth in Gross Profits 2.90% -1.99% 5.76% 3.68% -0.64%
Growth in Interest Expense 16.50% 4.27% 77.05% 30.56% 7.80%

Growth in Income Tax Expense 12.90% 27.22% 103.98% 2.68% 26.37%
Growth in Non Operating Expenses 3.80% #REF! #REF! #REF! #REF!
Growth in Minority Interest 96.00% 1676.47% -27.48% 38.36% 69.97%
Growth in Net Income 33.50% #NAME? #NAME? #NAME? #NAME?
Growth in Earnings Per Share 32.60% #NAME? #NAME? #NAME? #NAME?
Cash and Cash Equivalents 3.08% -4.04% -5.16% 10.77% -12.83%

Short Term Marketable Securities 12.00% 50.00% -20.00% -50.00% 83.33%
Accounts Receivable 26.70% 51.96% 18.06% 22.95% 35.11%
Inventory 19.90% 35.32% 21.32% 15.15% 8.42%
Other Current Assets 26.70% 32.18% 19.13% 20.44% -7.27%
Total Current Assets 21.50% #REF! #REF! #REF! #REF!
Net Fixed Assets 17.80% 24.98% 24.02% 23.69% 2.83%

Longterm Investments 6.20% -11.11% -62.50% 391.67% 53.39%
Investments in Other Companies 0.00% -100.00% #DIV/0! #DIV/0! 64.80%
Intangibles and Other Assets 16.50% 10.00% -4.55% 28.57% 44.44%
Total Non Current Assets 32.50% #REF! #REF! #REF! #REF!
Growth in Total Assets 1.05% #REF! #REF! #REF! #REF!
Accounts Payable 26.20% 53.66% 4.44% 17.63% 24.03%

Short Term Borrowings 33.50% 52.50% 40.98% 20.16% 14.52%
Short Term Portion of LT Debt 16.70% 25.00% 66.67% 20.00% 20.00%
Other Current Liabilities 12.80% 19.05% 18.40% 7.43% -18.18%
Total Current Liabilities 38.02% #REF! #REF! #REF! #REF!
Longterm Debt / Borrowings 46.00% 50.86% 48.57% 38.46% 9.72%

Other Longterm Liabilities 11.30% 15.38% -6.53% 26.96% 11.80%
Total Non Current Liabilities 37.10% 38.12% 32.04% 36.02% 10.13%
Growth in Total Liabilities 31.05% #REF! #REF! #REF! #REF!
Preferred Equity 0.00% #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Common Equity 2.60% -1.91% 3.19% 1.01% 1.44%
Additional Paid in Capital 1.50% -2.25% 5.29% 9.05% 0.04%
Retained Earnings 38.00% 38.32% 39.57% 52.95% 32.92%
Adj for Foreign Currency Transl -166.00% -56.36% -558.33% 290.36% 213.09%
Treasury Stock 2.01% 3.91% 1.37% 2.70% 1.97%
Growth in Total Equity (Net Worth) 6.11% #NAME? #NAME? #NAME? #NAME?
Sustainable Growth Rate #1 #NAME? #NAME? #NAME? #NAME? #NAME?

Sustainable Growth Rate #2 #NAME? #NAME? #NAME? #NAME? #NAME?
Growth in Market Capitalization 14.50% 24.69% 29.39% -6.32% -14.00%

Vertical Analysis for
Vertical analysis expresses financial statements as percentages. On the Balance Sheet,

Total Assets is assigned 100% and on the Income Statement, Total Revenues is assigned 100%.
expressed in percentages
Account Title 1996 1997 1998 1999 2000
Cash and Cash Equivalents #REF! #REF! #REF! #REF! #REF!

Short Term Marketable Securities #REF! #REF! #REF! #REF! #REF!
Accounts Receivable #REF! #REF! #REF! #REF! #REF!
Inventory #REF! #REF! #REF! #REF! #REF!
Other Current Assets #REF! #REF! #REF! #REF! #REF!
Current Assets #REF! #REF! #REF! #REF! #REF!
Net Fixed Assets #REF! #REF! #REF! #REF! #REF!

Longterm Investments #REF! #REF! #REF! #REF! #REF!
Investments in Other Companies #REF! #REF! #REF! #REF! #REF!
Intangibles and Other Assets #REF! #REF! #REF! #REF! #REF!
Non Current Assets 77.28% 76.47% 77.59% 78.86% 77.98%
Accounts Payable #REF! #REF! #REF! #REF! #REF!

Short Term Borrowings #REF! #REF! #REF! #REF! #REF!
Short Term Portion of LT Debt #REF! #REF! #REF! #REF! #REF!
Other Current Liabilities #REF! #REF! #REF! #REF! #REF!
Longterm Debt / Borrowings #REF! #REF! #REF! #REF! #REF!

Other Longterm Liabilities #REF! #REF! #REF! #REF! #REF!
Total NonCurrent Liabilities #REF! #REF! #REF! #REF! #REF!
Total Liabilities #REF! #REF! #REF! #REF! #REF!
Preferred Equity #NAME? #NAME? #NAME? #NAME? #NAME?

Common Equity #NAME? #NAME? #NAME? #NAME? #NAME?
Additional Paid in Capital #NAME? #NAME? #NAME? #NAME? #NAME?
Retained Earnings #NAME? #NAME? #NAME? #NAME? #NAME?
Adj for Foreign Currency Transl #NAME? #NAME? #NAME? #NAME? #NAME?
Treasury Stock #NAME? #NAME? #NAME? #NAME? #NAME?
Total Equity #NAME? #NAME? #NAME? #NAME? #NAME?
Total Liabilities & Equity #NAME? #NAME? #NAME? #NAME? #NAME?
Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Goods Sold 40.99% 42.17% 38.84% 36.58% 36.98%
Gross Profit 58.96% 57.78% 61.11% 63.36% 62.96%
Operating Expenses 27.42% 23.28% 21.96% 23.01% 26.04%

Non Operating Expenses 7.51% 6.64% 10.79% 9.65% 10.80%
Income Before Extra Ord Items #REF! #REF! #REF! #REF! #REF!

Enter Your Forecast Periods => 2001 2002 2003 2004 2005
Pro Forma Income Statement
Gross Revenues 30,742 34,431 38,562 43,190 48,373

Growth Assumptions 12.00% 12.00% 12.00% 12.00% 12.00%

Operating Expenses -7483 -8381 -9387 -10513 -11775

NonOperating Expenses -3200 -3200 -3600 -3600 -4000
ExtraOrdinary Items 650 650 650 700 700
Net Income 8685 10033 11143 12884 14378
Pro Forma Cash Flow Statement
Sources of Operating Cash Flow:

Net Income 8685 10033 11143 12884 14378
(Increase) Decrease Defer Taxes
(Gain) Loss on Sale of Assets 15 9 2 3 6
(Increase) Decrease Current Assets #REF! -996 -1116 -1249 -1399
Increase (Decrease) Current Liab #REF! 1291 1446 1620 1814
Operating Cash Flow #REF! 10827 11975 13777 15348
Investment Sources of Cash Flow:

Planned Sale of Assets 100 60 20 25 35
Planned Sale of Investments 2200 2100 1900 1800 1700
Other Investment Sources to be used
Total Investment Sources of Cash 2300 2160 1920 1825 1735
Planned Investments:
Acquisitions in Other Co's -500 -750 -1200 -650 -350
Total Investment Applications of Cash -7000 -7250 -8800 -9350 -9950
Cash Flow from Financing Activities:

Proceeds from Loans & Debt 1300 1000 950 750 650
Other Financing Activities
Total Financing Sources of Cash 1320 1060 1030 840 750
Cash Flow Applied for Financing:

Payments on Loans & Debt -1500 -1000 -600 -500 -500
Purchase / Retire Stock -2000 -2000 -1500 -1000 -500
Enter Your Forecast Periods => 2001 2002 2003 2004 2005

Total Financing Applications of Cash -6000 -6000 -6100 -7000 -8000
Total Change to Cash #REF! 797 25 92 -117
Beginning Cash Balance 870 #REF! #REF! #REF! #REF!

Forecasted Ending Balance #REF! #REF! #REF! #REF! #REF!
Pro Forma Balance Sheet

Short Term Marketable Securities
Inventory 2459 2754 3085 3455 3870
Fixed Assets 31600 34600 37700 40400 43000

Net Fixed Assets 28120 30630 33230 35410 37460
Investments in Other Companies 912 1662 2862 3512 3862
Total Non Current Assets 30937 35637 42117 49227 57177

Total Current Liabilities 10790 12081 13522 15136 16945

Total Liabilities 15240 16581 18422 20286 22245
Preferred Equity
Common Equity 2200 2200 2200 2200 2200
Retained Earnings 26190 33222 40365 47748 55126
Adj for Foreign Currency Transl -5000 -4000 -2500 -1500 -500
Treasury Stock -3550 -5550 -7050 -8050 -8550
Total Equity 25540 31572 38715 46098 53976
External Financing Required (EFR) #REF! #REF! #REF! #REF! #REF!

Home Wksh2 ProForma Financials (Linear Trend Model)
Wksh5 Wksh6
Wksh7 Wksh8 A set of pro forma (forecasted) financial statements are generated using the results of
Wksh9 Wksh10 the historical analysis in the previous worksheets. A statistical method known as
Wksh11 active linear regression is used to predict future values. If you have important assumptions
Wksh13 Wksh14 that are important to the forecast, then these assumptions should over-ride the
Wksh15 Wksh16 linear calculations since we want our forecast to be as accurate as possible.
Key Point => If your historical information has gradual trends, then linear regression
is an appropriate model for forecasting. However, if your historical information has
distinct steps up or down, then you should consider using a smoothing model .
Before we adopt a regression model, it's a good idea to generate a scatter graph of the actual data
and observe if there is a clear trend for fitting a straight regression line into the data:
Total Revenues
30,000
Total Revenues
25,000 Total
20,000 Revenues
15,000
10,000
5,000
0
1994 1996 1998 2000 2002
Periods
The calculation of linear values is determined by defining the slope of the line and the y intercept:
Order Total Rev Linear Slope Intercept
Formula for Linear Trendline: Year variable x actual y Value y m factor b factor
1996 1 12,076 12,683 3876.20 8806.60
y=(m*x)+b 1997 2 16,719 16,559
1998 3 21,196 20,435
m: slope of line 1999 4 24,737 24,311
x: independent variable 2000 5 27,448 28,188
b: y intercept 2001 6 32,064
2002 7 35,940
2003 8 39,816
2004 9 43,692
2005 10 47,569
The degree of linear fit with the actual data can be expressed as R Square 0.9888

2001 2002 2003 2004 2005
12-1 Gross Revenues 32064 35940 39816 43692 47569
12-2 Cost of Goods Sold -11607 -12847 -14087 -15327 -16567

12-3 Operating Expenses -7750 -8693 -9636 -10579 -11522
12-4 Operating Income 12707 14400 16093 17786 19480
12-5 Non Operating Expenses #REF! #REF! #REF! #REF! #REF!
4-25 Extra Ordinary Items #NAME? #NAME? #NAME? #NAME? #NAME?
Net Income #REF! #REF! #REF! #REF! #REF!

Net Income #REF! #REF! #REF! #REF! #REF!
(Increase) Decrease Defer Taxes
(Gain) Loss on Sale of Assets 15 9 2 3 6
(Increase) Decrease Current Assets #REF! -1047 -1047 -1047 -1047
Increase (Decrease) Current Liab #REF! 1357 1357 1357 1357
Operating Cash Flow #REF! #REF! #REF! #REF! #REF!

Planned Sale of Assets 100 60 20 25 35
Planned Sale of Investments 2200 2100 1900 1800 1700
Total Investment Sources of Cash 2300 2160 1920 1825 1735
Acquisitions -500 -750 -1200 -650 -350
Total Investment Applications of Cash -7000 -7250 -8800 -9350 -9950

Proceeds from Loans & Debt 1300 1000 950 750 650
Total Financing Sources of Cash 1320 1060 1030 840 750

Payments on Loans & Debt -1500 -1000 -600 -500 -500
Purchase / Retire Stock -2000 -2000 -1500 -1000 -500
Total Financing Applications of Cash -6000 -6000 -6100 -7000 -8000
Total Change to Cash #REF! #REF! #REF! #REF! #REF!
Beginning Cash Balance 870 #REF! #REF! #REF! #REF!

Forecasted Ending Balance #REF! #REF! #REF! #REF! #REF!

Inventory 2565 2875 3185 3495 3805
Fixed Assets 31600 34600 37700 40400 43000

Net Fixed Assets 28120 30630 33230 35410 37460
Investments in Other Companies 912 1662 2862 3512 3862
Total Non Current Assets 30937 35637 42117 49227 57177

Total Current Liabilities 11252 12609 13961 15312 16664

Total Liabilities 15702 17109 18861 20462 21964
Preferred Equity
Common Equity 2200 2200 2200 2200 2200
Retained Earnings #REF! #REF! #REF! #REF! #REF!
Adj for Foreign Currency Transl -5000 -4000 -2500 -1500 -500
Treasury Stock -3550 -5550 -7050 -8050 -8550
Total Equity #REF! #REF! #REF! #REF! #REF!
External Financing Required (EFR) #REF! #REF! #REF! #REF! #REF!

Home Wksh2 ProForma Financials (Exponential Smoothing / Weighted Moving Average)
Wksh5 Wksh6
Wksh7 Wksh8 A set of pro forma (forecasted) financial statements are generated using the results of
Wksh9 Wksh10 the historical analysis in the previous worksheets. A statistical method known as
Wksh11 Wksh12 exponential smoothing is used to plot a trend over historical data. Additionally, we
active Wksh14 can use a weighted moving average to forecast future periods.
Wksh15 Wksh16 Key Point => If you have a general upward historical trend, weighted average will tend
to underestimate forecasted values and vice versa (downward trend = overestimate).
Exponential Smoothing and Weighted Moving Averages for Total Revenues:

Years => 1996 1997 1998 1999
Total Revenues - Historical 12076 16719 21196 24737
Total Revenues - Exponential 12076 12076 16719 21196
Total Revenues - Wt Moving Avg 11105 15230 18890 21605
Smoothing Factor must be between 0 and 1 1 Total weights should add up to =>
Set Smoothing Factor 1
Assign weights to appropriate periods 0.00% 1.50% 4.50% 34.50%
Find the Optimal Smoothing Factor:

Total Exponent
Revenues Amounts Difference Square
12076 12076
16719 12076 4643 21557449
21196 16719 4477 20043529
24737 21196 3541 12538681
27448 24737 2711 7349521
Mean Squared Error 12297836
Find the Optimal Moving Weights:

Total Weighted
Revenues Amounts Difference Square
12076 11105 971 942841
16719 15230 1489 2217121
21196 18890 2306 5317636
24737 21605 3132 9809424
27448 22965 4483 20100607
Mean Squared Error 7677526
Exponential Comparison
30,000
Total
25,000 Revenues -
Historical
Total Revenues
20,000 Total
Revenues -
15,000 Exponential
Total
10,000 Revenues - Wt
Moving Avg
5,000
2001 2002 2003 2004 2005

Periods
Revenues -
Total Reve
15,000 Exponential
Total
10,000 Revenues - Wt
Moving Avg
5,000
2001 2002 2003 2004 2005

Periods
Annual Annual Annual Annual

Period Period Period Period
2001 2002 2003 2004
Gross Revenues 26070 26413 26316 26355
Cost of Goods Sold -10197 -10207 -9860 -9694
Operating Expenses -6346 -6226 -6229 -6464
Operating Income 9527 9979 10227 10197
NonOperating Expenses -3200 -3200 -3600 -3600
ExtraOrdinary Items 650 650 650 700
Net Income 6977 7429 7277 7297

Net Income 6977 7429 7277 7297
Depreciation and Amortization 470 490 500 520
(Increase) Decrease Defer Taxes 0 0 0 0
(Gain) Loss on Sale of Assets 15 9 2 3
(Increase) Decrease Current Assets #REF! -92 26 -11
Increase (Decrease) Current Liab #REF! 120 -34 14
Operating Cash Flow #REF! 7956 7771 7824

Planned Sale of Assets 100 60 20 25
Planned Sale of Investments 2200 2100 1900 1800
Total Investment Sources of Cash 2300 2160 1920 1825
Capital Expenditures -3500 -3000 -3100 -3900
Acquisitions -500 -750 -500
Purchases of Investments -2000 -3000 -3000 -1000
Total Investment Applications of Cash -6000 -6750 -6600 -4900

Proceeds from Loans & Debt 1300 2000 3000 4500
Proceeds from Minority Interest 20 60 80 90
Total Financing Sources of Cash 1320 2060 3080 4590

Payments on Loans & Debt -1500 -1800 -2500 -4000
Dividends Paid to Shareholders -2500 -3000 -4000 -4000
Purchase / Retire Stock
Total Financing Applications of Cash -4000 -4800 -6500 -8000
Total Change to Cash #REF! 626 -329 1339
Beginning Cash Balance 870 #REF! #REF! #REF!

Forecasted Ending Balance #REF! #REF! #REF! #REF!
Cash and Cash Equivalents #REF! #REF! #REF! #REF!

Accounts Receivable 2607 2641 2632 2636
Inventory 2086 2113 2105 2108
Other Current Assets 1695 1717 1711 1713
Total Current Assets #REF! #REF! #REF! #REF!
Fixed Assets 31600 34600 37700 41600

Accumulated Depreciation -3480 -3970 -4470 -4990
Net Fixed Assets 28120 30630 33230 36610
Longterm Investments 705 1605 2705 1905
Investments in Other Companies 912 1662 2162 2162
Intangibles and Other Assets 75 100 150 150
Total Non Current Assets 29812 33997 38247 40827
Total Assets #REF! #REF! #REF! #REF!
Accounts Payable 4432 4490 4474 4480

Short Term Borrowings 3128 3170 3158 3163
Short Term Portion of LT Debt 30 30 25 20
Other Current Liabilities 1564 1585 1579 1581
Total Current Liabilities 9155 9274 9236 9244
Longterm Debt / Borrowings 3750 3950 4450 4950

Other Longterm Liabilities 700 750 800 800
Total Non Current Liabilities 4450 4700 5250 5750
Total Liabilities 13605 13974 14486 14994
Preferred Equity
Common Equity 2200 2200 2200 2200
Additional Paid in Capital 5700 5700 5700 5700
Retained Earnings 17505 14505 10505 6505
Adj for Foreign Currency Transl -5000 -3500 -1000
Treasury Stock -1550 -1550 -1550 -1550
Total Equity 18855 17355 15855 12855
External Financing Required (EFR) #REF! #REF! #REF! #REF!

ving Average)
2000 2001 2002 2003 2004 2005

27448
24737
22965 26070 26413 26316 26,355 26,340
hts should add up to => 100.00%
59.50% 100.00%
Annual
Period
2005
26340
-9740
-6859
9740
-4000
700
6440
6440
550
0
6
4
-5
6995
35
1700
1735
-4600
-1000
-5600
7000
100
7100
-6000
-3000
-9000
1230
#REF!
#REF!
#REF!
2634
2107
1712
#REF!
46200
-5540
40660
1205
2162
100
44127
#REF!
4478
3161
15
1580
9234
5950
800
6750
15984
2200
5700
3505
-1550
9855
#REF!
Home Wksh2 Scenario Analysis for
Wksh5 Wksh6
Wksh7 Wksh8 We can copy our forecast into a new worksheet and do scenario analysis and goal-seek analysis.
Wksh9 Wksh10Although Microsoft Excel includes Scenario Manager, it can be easier and quicker to simply do our
Wksh11 Wksh12 scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding
Wksh13 active formula in another cell.
Wksh15 Wksh16
2001 2002 2003 2004 2005
Pro Forma Income Statement (Simple Projection Method)

Scenario => Non Operating Expenses will decline by $ 100,000 in year 2003 and again in year 2005:
Gross Revenues 30742 34431 38562 43190 48373

NonOperating Expenses -3200 -3200 -3100 -3100 -3000
ExtraOrdinary Items 650 650 650 700 700
Net Income 8,685 10,033 11,643 13,384 15,378
Instead of copying our forecast into this worksheet, we can simply do scenario analysis directly in
the forecast itself.
Pro Forma Income Statement (Linear Trend Method)

Goal Seek => What total revenues are required if Net Income must be $ 13.5 million in Year 2004?
Gross Revenues 32064 35940 39816 44301 47569

Non Operating Expenses -3549 -4088 -4627 -5166 -5705
Extra Ordinary Items 271 271 271 271 271
Net Income (formula cells) 9430 10584 11738 13500 14046
Do not change formula cells (goals) to values

when using Goal Seek (Tools > Goal Seek)
This is the target cell that Goal Seek is seeking

to change per the value 13,500 in cell G34
eek is seeking
Home Wksh2 Budget Analysis for
Wksh5 Wksh6
Wksh7 Wksh8 Once we complete our forecast, we can summarize and review it before finalizing it
Wksh9 Wksh10 into the form of budgets. We also need to summarize our assumptions that should
Wksh11 Wksh12 go into our final budget. We can start our budget process by reviewing the different
Wksh13 Wksh14 revenue forecast:
active Wksh16

2001 2002 2003 2004 2005
Summarize Revenue Forecast:

Simple Projection Model 30,742 34,431 38,562 43,190 48,373
Linear Trend Model 32064 35940 39816 43692 47569
Wt Moving Avg Model 26070 26413 26316 26355 26340
Declining Growth Model 29644 31422 32679 33170 31000
Historical Data 12076 16719 21196 24737 27448
Projection using declining growth rates:
Gross Revenues 29644 31422 32679 33170 31000
Forecast Comparisons
60,000
Simple
50,000 Projection
Model
Linear Trend
Total Revenues
40,000 Model
Wt Moving
30,000 Avg Model
Declining
20,000 Growth Model
Historical Data
10,000
0
2001 2002 2003 2004 2005
Periods
In addition to using linear models for forecasting, we can apply several non-linear (curve) models:
Logarithmic - Used when rate of change in data suddenly shifts upward or downward.
Power - Used when rate of change in data occurs at a specific rate.
Exponential - Used when rate of change is increasing or decreasing at ever higher rates.
Polynomial - Used when rate of change fluctuates with no pattern.
Logarithmic Trend
Actual Predicted Slope Intercept
Formula for Logarithmic Trendline x factor Values Value y c factor b factor
1 12,076 -11242 9600.92 11242.34
y = ( c * LN (x)) - b 2 16,719 -4587
3 21,196 -695
LN: Natural Logarithm 4 24,737 2067
5 27,448 4210
6 5960
7 7440
8 8722
9 9853
10 10865
Power Trendline
y = b * x^c x factor Values Value y c factor b factor
1 12,076 11951 0.52 9.39
2 16,719 17109 11951.33
3 21,196 21104
4 24,737 24493
5 27,448 27491
6 30212
7 32721
8 35063
9 37267
10 39356
Exponential Trendline
x factor Values Value y c factor b factor
y = b * EXP ( c * x ) 1 12,076 13061 0.2 9.27
2 16,719 16007 10657.5
3 21,196 19618
4 24,737 24043
5 27,448 29465
6 36111
7 44256
8 54238
9 66472
10 81464
Polynomial Trendline
Actual Predicted
y = (c2 * x^2) + (c1 * x^1) + b x factor Values Value y c2 c1
1 12,076 11997 -342.86 5933.34
2 16,719 16902
3 21,196 21121
4 24,737 24654
5 27,448 27502
6 29664
7 31140
8 31930
9 32035
10 31454
Summarize Non Linear Curves on Graph:

1996 1997 1998 1999 2000
Logarithmic Trendline -11242 -4587 -695 2067 4210
Power Trendline 11951 17109 21104 24493 27491
Exponential Trendline 13061 16007 19618 24043 29465
Polynomial Trendline 11997 16902 21121 24654 27502
Actual Revenues 12,076 16,719 21,196 24,737 27,448
Non Linear Trends
100,000
Logarithmic
80,000 Trendline
Power
Total Revenues
60,000
Trendline
40,000 Exponential
Trendline
20,000 Polynomial
Trendline
Actual
(20,000) Revenues
1996
1997
1998
2099
2000
2001
2002
2003
2004
05
19
Periods
Variance Analysis of Past Budgets:
Accuracy in the budget process should be examined to determine the degree of error or
variance in the budget process. If the variance is high, this indicates a need to improve
planning techniques within the company. TBD: To be Determined
1996 1997 1998 1999 2000

Income Statement Items
Total Revenues - Budgeted 10500 14500 22500 28500 30000
Total Revenues - Actual 12076 16719 21196 24737 27448
% difference from actual -13% -13% 6% 15% 9%
Cost of Goods Sold - Budgeted -4500 -6500 -8648 -9650 -11000

Cost of Goods Sold - Actual -4950 -7050 -8233 -9050 -10150
Operating Income - Budgeted 3100 4900 9000 11000 10,500

Operating Income - Actual 3815 5776 8309 9995 10150
Net Income - Budgeted 2100 4100 6500 9000 9300

Net Income - Actual #NAME? #NAME? #NAME? #NAME? #NAME?
% difference from actual #NAME? -17% 4% 14% 21%
Balance Sheet Items

Current Assets - Budgeted 3450 4400 6250 7500 7900
Current Assets - Actual #REF! #REF! #REF! #REF! #REF!
% difference from actual #REF! -12% 8% 10% 5%
NonCurrent Assets - Budgeted 10900 14000 22000 27500 29,500

NonCurrent Assets - Actual #REF! #REF! #REF! #REF! #REF!
% difference from actual #REF! -14% 10% 8% 11%
Current Liabilities - Budgeted 3750 5600 8200 9050 9400

Current Liabilities - Actual #REF! #REF! #REF! #REF! #REF!
% difference from actual #REF! -10% 11% 5% -3%
NonCurrent Liabilities - Budgeted 1750 2450 3750 4900 5100

NonCurrent Liabilities - Actual 1810 2500 3301 4490 4945
Ratio Items
Current Ratio - Budgeted 1 1 1 1 0.80
Current Ratio - Actual #REF! #REF! #REF! #REF! #REF!
% difference from actual #REF! -2% -2% 5% 3%
Total Asset Turnover - Budgeted 0.68 0.72 0.80 0.80 0.79

Total Asset Turnover - Actual #REF! #REF! #REF! #REF! #REF!
% difference from actual #REF! -8% -3% 4% -2%
Gross Profit Margin - Budgeted 60% 60% 60% 60% 60%

Gross Profit Margin - Actual 59% 58% 61% 63% 63%
% difference from actual 2% 4% -2% -5% -5%
Net Profit Margin - Budgeted 19% 25% 28% 30% 28%

Net Profit Margin - Actual #NAME? #NAME? #NAME? #NAME? #NAME?
% difference from actual #NAME? -16% -5% -6% 0%
Debt to Common Equity - Budgeted 0.45 0.50 0.60 0.65 0.55

Debt to Common Equity - Actual 1 1 1 1 1
% difference from actual -11% -20% -4% 13% 4%
Return on Equity - Budgeted 20% 29% 32% 35% 30%

Return on Equity - Actual 24% 33% 35% 33% 26%
% difference from actual -16% -13% -9% 5% 16%
We can use specific measurements to track and control forecasting errors:
Mean Absolute Error - An absolute value of forecast errors, does not place weight on the
amount of the error. Calculated as the sum of (actual values - predicted values) / n.
Mean Square Error - Similar to Mean Absolute Error, but does place more emphasis on
the amount of error; i.e. an error of 8 is twice as significant as 4. Calculated as the
sum of (actual values - predicted values)^2 / n.
Root Mean Square Error - To make the Mean Square Error useful and comparable to the Mean
Absolute Error, we can take the square root of the Mean Square Error. We can then use this
as a guide to establish an error limit or standard for flagging unacceptable errors.
Actual Forecasted
Example: Total Revenues Period Revenues Revenues Error Absolute
n: total number of periods 1996 12076 10500 1576 1576
1997 16719 14500 2219 2219
1998 21196 22500 -1304 1304
1999 24737 28500 -3763 3763
2000 27448 30000 -2552 2552
n => 5 Sum => -3824 3824
Mean Absolute Error 765

Mean Square Error 2924595
Root Mean Sqr Error 1,710
Establish Error Limits 1,710
ear (curve) models:
< - calculate using c and b factor - >
Predicted
( c * x) EXP Value y
0.20339 1.23 13061
0.40678 1.5 16007
0.61017 1.84 19618
0.81356 2.26 24043
1.01695 2.76 29465
1.22034 3.39 36111
1.42373 4.15 44256
1.62712 5.09 54238
1.83051 6.24 66472
2.03390 7.64 81464
b
6406.6
2001 2002 2003 2004 2005

5960 7440 8722 9853 10865
30212 32721 35063 37267 39356
36111 44256 54238 66472 81464
29664 31140 31930 32035 31454
Logarithmic
Trendline
Power
Trendline
Exponential
Trendline
Polynomial
Trendline
Actual
Revenues
(Wksht 16)
2001
30500
TBD
#VALUE!
-11929
TBD
#VALUE!
11146
TBD
#VALUE!
7986
TBD
#VALUE!
#REF!
TBD
#VALUE!
31555
TBD
#VALUE!
10715
TBD
#VALUE!
5250
TBD
#VALUE!
#REF!
TBD
#VALUE!
#REF!
TBD
#VALUE!
1
TBD
#VALUE!
26%
TBD
#VALUE!
#REF!
TBD
#VALUE!
#REF!
TBD
#VALUE!
able to the Mean

then use this
Is Error
Error Outside
Squared Limit?
2483776 No
4923961 Yes
1700416 No
14160169 Yes
6512704 Yes
14622976 Yes
Home Wksh2 Final Budgets for
Wksh5 Wksh6
Wksh7 Wksh8 Now that we have analyzed our historical data and placed it into a set of
Wksh9 Wksh10 forecast, we can pull it all together with our assumptions for a final budget.
Wksh11 Wksh12 Many of these assumptions should be included in our forecast for improved
Wksh13 Wksh14 accuracy. However, we need to fine tune and finalize all assumptions
Wksh15 active so that we can produce a final finished budget for planning purposes.
Budget
Period
Ref 2001
Operating Plan
16-1 Total Revenues 30500

16-2 Cost of Goods Sold -11929
16-3 Operating Expenses -7424
16-4 Operating Income 11146
16-5 Interest Expenses -310

16-6 Income Taxes -3300
16-7 Other Non Operating Expenses -200
16-8 Earnings Before Extra Ord Items 7336

16-9 Extra Ordinary Items 650
16-10 Net Income 7986
Financial Plan
Budgeted Cash Flows
16-11 Net Income 7986

16-12 Depreciation and Amortization 470
16-13 (Increase) Decrease Defer Taxes
16-14 (Gain) Loss on Sale of Assets 15
16-15 (Increase) Decrease Current Assets #REF!
16-16 (Increase) Decrease Current Liab #REF!
16-17 Operating Cash Flow #REF!
Investment Sources of Cash:

16-18 Planned Sale of Assets 100
16-19 Planned Sale of Investments 2200
16-20 Other Investment Sources to be used
16-21 Total Investment Sources of Cash 2300
16-22 Capital Expenditures -4500
16-23 Acquisitions in Other Co's -350
16-24 Purchases of Investments -2500
16-25 Total Investment Applications of Cash -7350
Cash Flow from Financing Activities

16-26 Proceeds from Loans & Debt 1450
16-27 Proceeds from Minority Interest 15
16-28 Other Financing Activities
16-29 Total Financing Sources of Cash 1465

16-30 Payments on Loans and Debt -1250
16-31 Dividends Paid to Shareholders -2500
16-32 Purchase / Retire Stock -1500
16-33 Other Financing Activities
16-34 Total Financing Applications of Cash -5250
16-35 Total Change to Cash #REF!
16-36 Beginning Cash Balance 870

16-37 Forecasted Ending Balance #REF!
Budgeted Balance Sheet
16-38 Cash and Cash Equivalents #REF!

16-39 Short Term Marketable Securities 10
16-40 Accounts Receivable 3050
16-41 Inventory 2440
16-42 Other Current Assets 1983
16-43 Total Current Assets #REF!
16-44 Fixed Assets 32600

16-45 Accumulated Depreciation -3480
16-46 Net Fixed Assets 29120
16-47 Longterm Investments 1205
16-48 Investments in Other Companies 1000
16-49 Intangibles and Other Assets 230
16-50 Total Non Current Assets 31555
16-51 Total Assets #REF!
16-52 Accounts Payable 5185

16-53 Short Term Borrowings 3660
16-54 Short Term Portion of LT Debt 40
16-55 Other Current Liabilities 1830
16-56 Total Current Liabilities 10715
16-57 Longterm Debt / Borrowings 4150

16-58 Other Longterm Liabilities 1100
16-59 Total Non Current Liabilities 5250
16-60 Total Liabilities 15965
16-61 Preferred Stock

16-62 Common Equity 2200
16-63 Additional Paid in Capital 5700
16-64 Retained Earnings 25491
16-65 Adj for Foreign Currency Translation -5000
16-66 Treasury Stock -3050
16-67 Total Equity 25341
16-68 Total Liabilities and Equity 41306
16-69 External Financing Required #REF!

rical data and placed it into a set of
th our assumptions for a final budget.
e included in our forecast for improved
tune and finalize all assumptions
ed budget for planning purposes.
Assumptions & Comments
Based on review of Pro Forma Financials, Marketing, etc.

Volume projections, production budgets, and vertical analysis
Average % of Sales per Vertical Analysis
Based on anticipated levels of debt and past history

Based on anticipated taxable income and effective rate
Provision for contingency was added on this line item
Per our Simple Model Forecast
Review of Simple Model Forecast and Capital Expenditure Budget
Per Simple Forecast Model

Same formula as used in forecast models
Per Simple Model Forecast

Budgeted $ 4.5 million in Capital Expenditure Budget

Per forecast, strategic plan, and other budgets
Per forecast, strategic plan, and other budgets
Per Financing Requirements and other budgets

Per historical financials and investment budget
Per forecast and other budgets
Per strategic plan and other budgets
Per above
Per historical financials


Per review of forecast and strategic plans
Per review of forecast and historical balances

Per review of forecast and historical information

Per review of historical information and expected growth rates.

Microsoft Excel 9.0 Answer Report
Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp)
Report Created: 3/16/2002 3:42:28 PM
Target Cell (Min)

Cell Name Original Value Final Value
$G$60 Mean Squared Error Square 20525549 12297836
Adjustable Cells
$D$24 Set Smoothing Factor 1 1
Constraints
Cell Name Cell Value Formula Status Slack
$D$23 Smoothing Factor must be between 0 and 1 $D$23>=$D$23Binding
$D$24 Set Smoothing Factor 1 $D$24<=$E$23Binding 0
Microsoft Excel 9.0 Answer Report
Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp)
Report Created: 3/16/2002 5:19:05 PM
Target Cell (Min)

$G$46 Mean Squared Error Square 65536151 59853342
Adjustable Cells
$D$25 Assign weights to appropriate periods 0.00% 0.00%
$E$25 Assign weights to appropriate periods 2.00% 1.50%
$F$25 Assign weights to appropriate periods Total weights should add up to => 5.00% 4.50%
$G$25 Assign weights to appropriate periods 35.00% 34.50%
$H$25 Assign weights to appropriate periods 60.00% 59.50%
Constraints
Cell Name Cell Value Formula Status
$I$25 Assign weights to appropriate periods 100.00% $I$25=$E$23 Binding
$D$25 Assign weights to appropriate periods 0.00% $D$25<=$E$23Not Binding
$E$25 Assign weights to appropriate periods 1.50% $E$25<=$E$23Not Binding
$F$25 Assign weights to appropriate periods Total weights should add up to => 4.50% $F$25<=$E$23Not Binding
$G$25 Assign weights to appropriate periods 34.50% $G$25<=$E$23Not Binding
$H$25 Assign weights to appropriate periods 59.50% $H$25<=$E$23Not Binding
$D$25 Assign weights to appropriate periods 0.00% $D$25>=$D$23Binding
$E$25 Assign weights to appropriate periods 1.50% $E$25>=$D$23Not Binding
$F$25 Assign weights to appropriate periods Total weights should add up to => 4.50% $F$25>=$D$23Not Binding
$G$25 Assign weights to appropriate periods 34.50% $G$25>=$D$23Not Binding
$H$25 Assign weights to appropriate periods 59.50% $H$25>=$D$23Not Binding
Slack
0
1
0.99
0.96
0.66
0.41
0.00%
1.50%
4.50%
###
###

Financial Analysis & Forecasting: Prepared by Matt H. Evans, CPA, CMA, CFM

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Financial Analysis & Forecasting: Prepared by Matt H. Evans, CPA, CMA, CFM

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Financial Analysis & Forecasting

Prepared by Matt H. Evans, CPA, CMA, CFM

If a cell appears in red, this indicates a warning concerning a calculation.

A) Input Worksheets for financial analysis using historical data:

Worksheet Title Purpose

B) Output Worksheets for evaluating financial performance:

C) Pro Forma / Forecasted Financials for Budgeting:

What reporting periods will be entered?

2-9 Number of historical periods to be analyzed 5

How are the amounts expressed in the financial statements?

Fixed Assets 14006 17605 21826 26950 28100

Accounts Payable 2050 3150 3290 3870 4800

Longterm Debt / Borrowings 1160 1750 2600 3600 3950

Total Liabilities & Equity #NAME? #NAME? #NAME? #NAME? #NAME?

Check: Assets = Liab + Equity ? #REF! #REF! #REF! #REF! #REF!

NonDepreciable Fixed Assets 0 0 0 0 0

Interest Expenses -117 -122 -216 -282 -304

Extra Ordinary Items (Loss) Gain

Primary EPS #NAME? #NAME? #NAME? #NAME? #NAME?

Net Income #NAME? #NAME? #NAME? #NAME? #NAME?

Capital Expenditures -1455 -2750 -3880 -5220 -4108

Proceeds from Borrowings 1070 1044 1460 1880 1105

Increase (Decrease) to Cash #REF! #REF! #REF! #REF! #REF!

Beginning Cash Balance 1010 990 950 901 998

EBITDA Margin #REF! #REF! #REF! #REF! #REF!

Free Cash Flow:

Operating Leverage #REF! #REF! #REF! #REF!

Financial Leverage #NAME? #NAME? #NAME? #NAME?

Total Leverage #NAME? #NAME? #NAME? #NAME?

Check Totals 0.00 #NAME? #NAME? #NAME? #NAME?

Annual Annual Annual Annual Annual

Acid Test Ratio 0.47 0.40 0.37 0.38 0.40

Current Ratio #REF! #REF! #REF! #REF! #REF!

Days Required to Collect A/R 34 30 31 32 36

Total Asset Turnover #REF! #REF! #REF! #REF! #REF!

Annual Annual Annual Annual Annual

Gross Profit Margin 59% 58% 61% 63% 63%

Operating Margin 32% 35% 39% 40% 37%

Net Profit Margin #NAME? #NAME? #NAME? #NAME? #NAME?

Direct Cost to Operating Revenues 41% 42% 39% 37% 37%

Capitalization Rate / Asset Return:

Return on Shareholder Equity 24% 33% 35% 33% 26%

Debt to Total Assets #REF! #REF! #REF! #REF! #REF!

Debt to Common Equity 1 1 1 1 1

Times Interest Earned #NAME? #NAME? #NAME? #NAME? #NAME?

Price to Earnings (P/E) #NAME? #NAME? #NAME? #NAME? #NAME?

Price to Book Value #NAME? #NAME? #NAME? #NAME? #NAME?

Stock Yield 4.45% 5.14% 5.10% 5.21% 5.99%

Annual Annual Annual Annual Annual

8-2 Current Ratio - Industry 1.12 1.10 1.05 1.08 1.07

8-3 Receivable Turnover - Industry 8.50 8.70 8.40 8.20 8.30

8-4 Days to Collect A/R - Industry 41 39 40 41 41

8-5 Inventory Turnover - Industry 4.40 4.45 4.20 4.30 4.38

8-6 Days in Inventory - Industry 86 88 81 89 82

8-7 Asset Turnover - Industry 1.60 1.55 1.62 1.68 1.69

8-13 Return on Equity - Industry 26.00% 22.00% 24.00% 19.00% 20.00%

8-15 Debt to Equity - Industry 35% 38% 31% 34% 32%

8-16 Times Interest Earned - Industry 40 38 36 39 43

Graphs appear below for each of the above comparisons:

Acid Ratio Comparison

Current Ratio Comparison

Receivable Turnover Comparison