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- A 5 Year Projected Income Statement is a financial document that forecasts a company’s revenue and expenses over the next five years. It helps investors and management assess future profitability and plan strategically.
www.efinancialmodels.com/5-year-projected-income-statement-demystified-clear-explanations/5 Year Projected Income Statement Demystified: Clear Explanations
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Aug 21, 2024 · A projected income statement refers to a financial statement that shows the amount of income a business may earn in the future over a certain duration, for example, a quarter or year. Preparing this statement at fixed intervals allows for improved future planning.
- Forecasting Revenue
- Forecasting Cost of Goods Sold
- Forecasting Operating Expenses
- Forecasting Depreciation and Amortization
- Forecasting Stock-Based Compensation Expense
- Forecasting Interest Expense
- Forecasting Interest Income
- Forecasting Other Non-Operating Items
- Forecasting Income Taxes
- Forecasting Shares Outstanding and Earnings Per Share
The revenue (or sales) forecast is arguably the single most important forecast in most 3-statement models. Mechanically, there are two common approaches for forecasting revenue: 1. Grow revenues by inputting an aggregate growth rate. 2. Segment level detail and a price x volume approach. Approach 1. is straightforward. In our example, Apple’s reven...
Make a percentage gross profit margin (gross profit/revenue) or percentage COGS margin (COGS/revenue) assumption and reference that back into the dollar amount of COGS. Historical margins help to provide a benchmark which the analyst can either straight-line into the forecast period or reflect a thesis that emerges from a particular viewpoint (whic...
Operating expenses include selling costs, general and administrative expenses and research and development expenses. All of these expenses are driven by revenue growth or by an explicit expectation for possible changes in margin. For example, if last year’s SG&A margin was 21.4%, an “We don’t have a thesis on SG&A”-forecast for next year would simp...
Depreciation and amortization expenses are usually not classified explicitly on the income statement. Rather, they are embedded within other operating expense categories. However, you usually need to forecast D&A in order to arrive at an EBITDA forecast. Since D&A expenses are a function of historical and expected future capital expenditures and pu...
Like D&A, stock-based compensation is embedded within other operating expense categories, but the historical amounts can be explicitly found on the cash flow statement. Stock-based compensation is usually forecast as a percentage of revenue.
Like forecasting depreciation and amortization, forecasting interest expense is done as part of the balance sheet buildup in a debt schedule and is a function of projected debt balances and the projected interest rate. Interest expense is determined based on the company’s debt balances and interest income is determined based on the company’s cash b...
While revolver debt is usually the deficit plug, cash is the surplus plug such that any excess cash flows forecast by the model naturally lead to higher cash balances on the balance sheet. This means that we deal with the same circularity issues here as we do when forecasting interest income. Interest income is a function of projected cash balances...
In addition to interest income and interest expense, companies may have other non-operating income and expenses presented on the income statement, for which the nature is not explicitly disclosed. Those items are usually best forecast on a straight-line basis (as opposed to operating expenses, which are usually tied to revenue growth).
Usually, simply straight-lining the last historical year’s tax rate is sufficient. However, there are times where tax rates historically are not indicative of what a company can reasonably expect to face in the future. Learn more about this in our article on modeling tax rates.
The last element of the income statement forecast is forecasting shares outstanding and EPS. We cover this in our primer on forecasting shares and EPS.
http://www.corporatefinanceacademy.com/In Corporate Finance forecasting (also called planning or budgeting) is an important responsibility, especially in FP&...
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- Penetrate the Mystery: Your projected income statement is important for making business plans and for attracting investors. It has to be as accurate as possible, even though it's about events that haven't happened yet.
- Sales and Expenses: To begin making your projections, look at sales. How many customers do you expect over the projection period? How many units sold, or hours of service, if you're providing services?
- Drawing up the Statement: Say you're making a projection for the next quarter. Start with the business's projected sales income. Subtract the cost of goods sold to get the gross margin.
- Using Your Knowledge: Use the projected income statement to decide whether your plans need changing. Is your projected sales income too low? Then find a way to amp up the income, for example, by moving more units or increasing unit prices.
Feb 28, 2024 · Learn how to create a projected income statement to forecast your financial future. Understand key concepts like revenue, expenses, and net income.
Feb 24, 2020 · A 5-year forecast is an educated projection of your company’s financial performance over the next five years. It specifically details projected revenues, costs, expenses, cash flows (including any projected capital raises), and owner equity, as well as projecting sales growth and margins.
