The Income Statement captures profit performance, demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital.
This is often expressed in terms of sales volume, or compared to industry benchmarks.
The income statement provides significant information about the financial and operational health of a business. It provides details about revenue,
expenses and profits and the margins associated with these. The margins allow the owners, lenders or investors to compare the company's performance to others in its industry. Projected
income statements allow companies to forecast their performance in the future based on the assumptions they make about what will happen.
Projected Earnings
Projected earnings are also often referred to as pro forma earnings or forecasted earnings. Companies often project
earnings when they are in expansion mode or have one or more prospective shocks on the horizon. Shocks could include a potential
loss of a large customer or contract or a regulatory change. By projecting out the income statement, your company can actively
visualize what would happen if the company hits its targets or encounters the difficulties it envisions.
Investors and Lenders
Potential investors also like to see projected income statements. These projections provide investors with the financial impact of the objectives and strategy you outline in your company's business plan. Your company's projected income statement also helps investors assess if the growth potential warrants investment. However in case of debt funding, lenders are generally less concerned about growth potential and more concerned about continuity of profits. By using a projected income statement to show how a bank loan will help your company achieve consistent earnings, you can set your banker's mind at ease, increasing your likelihood of obtaining a loan.
The Statement of Cash Flows is the most critical forecast since it reflects viability rather than profitability. It can also be the most uncertain statement as projections extend into the future.
Preparing projected financial statements requires a careful analysis of the company's past and present financial health. Projected financial statements project or forecast a company's performance in the near future.
Preparing Projected Financial Statements:
Preparing projected financial statements require careful analysis. Prior to preparing projected financial statements, we study the financial history of the company. There may be some drawbacks, which the company may have encountered down the years. To eradicate such hurdles and for the betterment of the company's financial status, an analysis is conducted.
Factors Considered while Preparing Projected Financial Statements: