ProjectedCash Flow Statements And

Balance Sheet
What is a Cash Flow statement?

What are projected Cash Flows?

How frequently one should prepare
cash flow statements?
Why does one require projected cash Flow statements?

There are mainly 4 reasons:

Financial Planning
Project Evaluation
Fund Control
Lastly to create confidence in investors.
What is Balance sheet?

What is a projected balance sheet?

 What are the requirements for preparing a projected
balance sheet?
The balance sheet of the previous year
The projected income statement and the distribution of earnings
of the projected year
The sources of external financing proposed to be tapped in the
projected year
The proposed repayment of debt capital during the projected year
The outlays and the disposal of fixed assets during the projected
year
The changes in the level of current assets during the projected
year
The cash balance at the end of projected year
The changes in the other current assets and certain outlays like
preoperative and preliminary expenses which are capitalized
during the project year.
 Model Problem

A new firm ABC ltd, is being set up to manufacture alloy

steel. The expected outlays and proposed financing during
the construction and the first two operating years are given
below.
The projected revenues and costs are shown. It may be
assumed that (1) the tax rate of the firm will be 60% (2) no
deductions are available (3) preliminary and pre-operative
expenses will not be written off during the first two
operating years (4) no dividend will be paid in the first two
operating years
Based on the above information prepare projected Profit
and Loss Statement, Projected Cash Flow statement and
projected balance sheet
Projected outlays and financing of ABC limited: (lakhs)

Outlays Construction Operating year (1) Operating year (2)

period
Preliminary 2 ----------------------- ----------------------
expenses
Fixed Assets 20 ---------------------- -----------------------

Current -------------------- 20 10
Assets(other than
cash)
Financing

Share capital 10 15 ------------------------

Term loan 15 15 7.5

Short term --------------------- 12 6

borrowing
Projected Revenues and costs
Operating year (1) Operating year (2)

Sales 30 60

Cost of sales 30 40

Interest 4.8 6.4

Depreciation 2 2.8
PROJECTED PROFIT AND LOSS STATEMENTS OF ABC
LIMITED

OPERATING YEAR OPERATING YEAR

(1) (LAKHS) (2) (LAKHS)
SALES 30 60

COST OF SALES 30 40

INTEREST 4.8 6.4

DEPRECIATION 2 2.8

LOSSES (ABOSRBED) ------- 6.8

PBIT (6.8) 4

TAX -------- 2.4 (4*0.60)

PROFIT AFTER TAX (6.8) 1.6

PROJECTED CASH FLOW STSTEMENT OF ABC LIMITED

CONSTRUCTION OPERATING OPERATING

PERIOD
YEAR (1) YEAR (2)
SOURCES OF
FUNDS
SHARE ISSUE 10 15 --------------
PBTIAB (2) (-6.8+4.8) 17.2(4+6.8+6.4)

DEPRECIATION 2 2.8
PROVISION
INCREASE IN 15 15 7.5
LOANS
INCREASE IN 12 6
BORROWING
WORKING CAPITAL
TOTAL(A) 25 42 33.5
 PROJECTED CASH FLOW STSTEMENT OF ABC LIMITED

DISPOSITION
OF FUNDS

CAPITAL EXP 20 20 10
INCRESE IN 20 10
CURRENT ASSTES

INTEREST 4.8 6.4

OTHER EXP 2

TAXES 2.4

TOTAL(B) 22 44.8 28.8

PROJECTED CASH FLOW STSTEMENT OF ABC LIMITED

OPENING 3 0.2
CASH
BALANCE

NET SURPLUS 3 (2.8) 4.7

CLOSING CASH 3 0.2 4.9

BALANCE
 PROJECTED BALANCE SHEET OF ABC LIMITED

LIABILITIES END OF CP END OF 1 END OF 2

YEAR YEAR
SHARE 10 25 25

CAPITAL 1.6
RESERVES
TERM LOAN 15 30 37.5

SHORT TERM 12 18
BANK
BORROWINGS

TOTAL 25 67 82.1
PROJECTED BALANCE SHEET OF ABC LIMITED

ASSTES END OF CP END OF 1 END OF 2

YEAR YEAR

FIXED ASSETS 20 38 45.2

CURRENT 3 0.2 4.9

ASSETS/CASH

OTHERS 20 30

PRELIMINARY 2 2 2
EXP

P&L BALANCE 6.8

TOTAL 25 67 82.1