Financial Projections


Projected Financial Statements is summary of various component projections of revenues and expenses for the budget period. They indicate the expected net income for the period.

Projected Financial Statements are an important tool in determining the overall performance of a company. They include the balance sheet, income statement and cash flow statements to indicate the company performance.

The Balance Sheet shows your assets, liabilities and equity at a particular point in time. It is basically a snapshot of your financial position. The basic accounting formula is assets equal liabilities plus owner's equity. The asset section of the balance sheet should be presented in order of liquidity starting with the most liquid assets such as cash, accounts receivable and inventory. The liabilities section should be presented in order of maturity starting with liabilities that are payable over the next year such as a demand note payable and accounts payable.

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:

Various factors are considered for analysis of the financial health of the company. We use the following points to evaluate the position of the company:

  1. Whether the company's operational activities are up to the mark
  2. If the company is well equipped financially
  3. Condition of the market- if the market is in the process of growth, is at equilibrium or shriveling up.
  4. The status of the company in relation to the other companies in the industry.
  5. Strengths, weaknesses prevailing in the management of the company, type of product produced by the company, economic cycle of the company, accompanying hazards in the production of goods.
  6. Risks associated with operational activities
  7. Company's past performance records.

By carefully studying the various trends in the company's past performances, we try to predict the company's performance in future. Even if the financial health of a company has remained fairly stable over the years and the projected financial statements forecast a still better growth trend in the financial statement, any unforeseen event may change the course, in the projected financial statement.

In case of fresh start up, we analyze the business idea of the entrepreneur, his vision and goals. What he bringing into this venture and what is expected from the investor. An extensive study of market, competitor performance and targeted customer behaviour is also required.

The unforeseen events may occur in any part of the globe thereby impacting global economy in an adverse manner. We keep provision for such events and prepares details of a contingency fund, which can be made use of, if the above mentioned circumstances are encountered by any company.