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Handout/notes on forecasting/Schan

Projecting the Condensed Statements

Part1 -- Income statement item


Projection Method




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



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



(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




Percentage of sales



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



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


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