FINANCIAL

FORECASTING
LESSON 7
 BALANCE SHEET
- This includes the assets and liabilities
of the business along with the
owner’s equity.
 SOME OF THE ASSETS THAT CAN BE
FOUND ON A BALANCE SHEET INCLUDE
Current Assets/Liquid/Short Term
● Cash
● Accounts Receivable
● Inventory
● Supplies
Non- Current/Non-liquid/Long-term Assets
● Land
● Buildings and Improvements
● Furniture and Fixtures
● General Equipment
● Goodwill
● Intangible Assets
 TYPES OF LIABILITIES ON THE
BALANCE SHEET
Liabilities - are debts for the business and will
include short-term and long-term liabilities.
● Accounts Payable
● Taxes Payable
● Salaries / Wages Payable
● Interest Payable

Owner’s Equity - shows the amount of money

invested in the business along with retained
earnings.
 BALANCE SHEET
● balance sheets along with income statement are
statements that are not only used to evaluate the health
and financial position of a business but are the primary
statements that lenders and investors will look at.
● a portrait of the financial standing of a business at a point
in time.
● shows what your business owns and what it owes
● will show you a summary of a company’s assets, liabilities
and owner’s equity at a specific point in time.
 WHY PREPARE A BALANCE SHEET?
● the balance sheet is one of the three (3)
primary financial statements that a business
uses to evaluate its financial health.

● can be a very valuable tool in evaluating

financial performance and making financial
business decisions.
 BALANCE SHEET TERMS
1. Assets
a. Current assets or short-term assets
b. Non-current assets or long-term assets
c. Current liabilities
2. Long-term liabilities

3. Retained earnings
 ASSETS
A. Current assets or short-term assets - are assets that are expected
to be turned into cash within one year.
Cash - is considered the most liquid of all assets
Short-term assets - include items like
1. Accounts Receivable (A/R) - money owed by customers who
purchased goods or services on credit that was provided by the
company.
2. Prepaid expenses - (e.g.) rent or insurance.
 ASSETS
B. Non-current assets or long-term assets - are assets not expected
to take more than one year to be consumed or converted into cash
Long-term assets - include items like real estate or machinery

*The reason for dividing current and long-term assets is that these
categories can be used to measure the liquidity of a company by turning
assets into cash.
 ASSETS
C. Current liabilities - is a loan due to creditors within the next 12
months from the beginning date on the balance sheet.

1. Accounts Payable (A/P) - are short-term loans typically owed by the

business from purchases made on credit from suppliers or vendors.

2. Taxes payable - taxes that have accrued but have not yet been paid.
One example would be payroll taxes. The wages have been paid to
the employee but payroll taxes have not been paid yet as they
were not due at the time the balance sheet was created.
Long-term liabilities
- a debt that is due more than one year out from the date being
reviewed on the balance sheet.
Retained earnings
- earnings that are reinvested in the business after the deduction
of any dividends.
 CURRENT PORTION OF LONG-TERM

Debt - amount of principal that will be due within one year of the
date of the balance sheet.

Owner’s equity - sometimes referred to as stockholder equity. Net

worth or paid-in capital and is the amount owners have invested in the
business minus any withdrawals (not including salaries) taken since the
business began.
The balance sheet includes
the assets and liabilities What is included in
of the along with the a balance sheet?
owner’s equity.
 SOME OF THE ASSETS THAT CAN BE FOUND ON A
BALANCE SHEET INCLUDE

Current Assets
● Cash
● Accounts Receivable
● Inventory
● Supplies

Long-term Assets
● Land
● Buildings and Improvements
● Furniture and Fixtures
● General Equipment
● Goodwill
● Intangible Assets
 TYPES OF LIABILITIES ON THE BALANCE SHEET

Liabilities - are debts for the business and

will include short-term and long-term
liabilities.

● Accounts Payable
● Taxes Payable
● Salaries / Wages Payable
● Interest Payable
 Owner’s Equity
- shows the amount of money invested in
the business along with retained earnings
 FINANCIAL FORECASTING
● the use of historic data to determine the direction of future
trends.
● the process of making statements about events whose actual
outcomes have not yet been observed.
● a planning pool that helps met in its attempt to cope the
uncertainty of the future.
● starts with certain assumptions based on the MET’s
experiences, knowledge and judgement.
● predicting what will happen in the future by gathering and
analyzing past and current data.
 Successful forecasting = Science + Art
Science - implies that the body of the forecasting
knowledge lies on the solid ground of quantitative
forecasting methods (solid data and figures) and
their correct utilization for various business
situation.
Art - represents a combination of a decision
maker’s experience, logic, and intuition to
supplement the forecasting quantitative analysis.
 Important Considerations of The Entrepreneur in Making
The Expansion Leap, Estimating the Investments and
Financing Needed for the Expansion

Revenues - shown Expenses

usually as the item in an 1. Rent

income statement from 2. Phone and utilities

what all charges, costs, 3. Equipment
and expenses are
4. Fixtures
subtracted to arrive at net
5. Inventory
income.
6. Leaseholds improvements
Cost - an amount that
7. Licenses and tax deposits
has to be paid.
8. MKTG - Budgets
 TWO (2) TYPES OF FINANCIAL FORECAST
METHODS
1. Qualitative method - involves gathering information that cannot be
measured such as consumer’s opinion about new packaging for a
product, etc.

2. Quantitative method - uses data to predict future results

(e.g. using past sales volume for the upcoming year)
Forecasting financial statements is
meant to translate the business
plan into a numerical format
composed of financial statements.
These financial statements
summarize what is going to
happen to the business plan if
plans are carried out well.