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Handout/notes on forecasting/Schan

Projecting the Condensed Statements

Part1 -- Income statement item

   

Projection Method

 

Sales

 

Assumed growth rate multiplied by previous year's sales

Cost of goods sold (COGS)

 

Percentage of sales

Sales, general and adminstrative (SGA)

   

Percentage of sales

Depreciation

 

Percentage of net PPE

Operating profit (OP)

 

Calculated: Sales - COGS - SGA - Depreciation

Interest expense

 

(Rate on all ST debt)* (All ST debt at beginning of period) + (Rate on long-term debt)*(Long-term debt at beginning of period)

Interest income

 

(Rate on short-term investments)*(Short-term Investments at beginning of period)

Non-operating income (expense)

 

Percentage of sales

Earnings before taxes (EBT)

 

Calculated: OP - Interest expense + Interest income + Non-operating income

Taxes

 

(Tax rate)*(Earnings before taxes)

Net income before extraordinary items

   

Calculated: EBT - Taxes

After-tax extraordinary income (expense)

 

Percentage of sales

Net income

 

Calculated: NI before extraordinary items + After-tax extraordinary income

Preferred dividends

 

(Coupon rate on preferred stock)*(Preferred stock at beginning of period)

Common dividends

 

Growth rate multiplied by previous dividends

Additions to retained earnings

 

Calculated: Net income - Preferred dividends - Common dividends

Part2 - Balance sheet items (Assets)

   

Projection method

 

Cash

 

Percentage of sales

Inventory

 

Percentage of sales

Accounts receivable

 

Percentage of sales

Other short-term operating assets

   

Percentage of sales

Short-term investments

 

Plug: Chosen to make statement balance

Total current assets

Calculated: Cash + Inventory + AR + Other ST operating assets

Net PPE

 

Percentage of sales

Other long-term operating assets

 

Percentage of sales

Long-term investments

 

Percentage of sales

Total assests

 

Calculated: Total CA + Net PPE + Other LT operating assets + LT investments

Handout/notes on forecasting/Schan

Part 3 - Balance sheet items (Liabilities)

 

Projection method

 

Accounts payable

Percentage of sales

Accruals

Percentage of sales

Other current Liabilities

Percentage of sales

All short-term debt

Chosen to make statements balance

Total current liabilities

Calculated: AP + Accruals + Other CL + All ST debt percentage of value of operations

Long-term debt

Percentage of operating assets

Deferred taxes

Percentage of net PPE

Preferred stock

Percentage of operating assets

Other long-term liabilities

Percentage of sales

Total liabilities

Calculated: Total CL + LT debt + Deferred taxes + Preferred stock + Other LT liabilities

Par plus paid-in-capital (PIC) less treasury (and other adjustments)

Same as previous year

Retained earnings

Previous year's retained earnings plus current addition to retained earnings from income statement

Total common equity

Calculated: Par plus PIC + Retained earnings

Total liabilities and equity

Calculated: Total liabilities + Total common equity