Projected Financial Statement-20220523092526

Course : ENTR6346 – Entrepreneurial Finance
Management
PROJECTED FINANCIAL STATEMENT
Session 9
1
Check With Projected
Financials
• As a check on the cash budget, you can get the

exact same cash balance by constructing a full
set of financial statements. See Exhibits 6.3 –
6.5 in the textbook.
2
FORECASTING SALES OR
REVENUES
Forecasting for Early Stage Ventures (firms that are in either
their development, startup, or survival stage, or just entering
into their rapid growth stage of their life cycle)
Industry Probability of Sales

Component
Sales Scenario Occurrence Growth Rate Weight
Optimistic forecast .30 X 60% = 18.0%

Most likely forecast .40 X 50% = 20.0%
Pessimistic forecast .30 X 40% = 12.0%
1.00
Expected Value = 50.0%
3
ESTIMATING SUSTAINABLE
SALES GROWTH RATES
• Internally Generated Funds:

Net income or profits after taxes earned over
an accounting period
• Sustainable Sales Growth Rate:
Rate at which a firm can grow sales based on
the retention of profits in the business
4
Ending Equity  Beginning Equity
g
Beginning Equity
Change In Equity
g
Beginning Equity
Equity
g
Beginning Equity
5
E  Net Income x Retention Rate
E/Ebeg  (NI/Ebeg) x RR
g  (NI/Ebeg) x RR
6
ROE  Net Profit Margin x Asset Turnover x Equity Multiplier
NI NI NS TA
ROE   x x
CE NS TA CE
NI NS TA
g x x x RR
NS TA CEbeg
g  Operating Performance x Financial Policies
g  ROA x FP
7
ESTIMATING ADDITIONAL
FINANCING NEEDED TO
SUPPORT GROWTH
• Financing Capital Needed (FCN):
financial funds needed to acquire assets
necessary to support a firm’s sales growth
• Spontaneously Generated Funds:
increases in accounts payables and accruals
(wages and taxes) that occur with a sales
increase
8
ESTIMATING ADDITIONAL
FUNDS NEEDED TO SUPPORT
GROWTH
• Additional Funds Needed (AFN):
gap remaining between the financial capital needed
and that funded by spontaneously generated funds
and retained earnings, or,
• AFN =
Required Increase in Assets
– Spontaneously Generated Funds
– Increase in Retained Earnings
9
AFN EQUATION
TA o APo  ALo NIo
AFN  (NS) - (NS) - (NS1) (RRo)
NSo NSo NSo
where : TA  Total assets
NS  Net sales
NS  Change in net sales between next year and current year
AP  Accounts payable
AL  Accrued liabilities
NI  Net Income
RR  Retention Rate
10
AFN CALCULATIONS
• Sales last year = $1,600,000
• Asset investment = $1,000,000
• Net Income = $160,000
• Current Assets = $520,000
• Fixed Assets = $480,000
• Accounts Payable = $48,000
• Accrued Liabilities = $32,000
• Projected next year sales = $2,080,000
11
AFN 
$1,000,000 $80,000 $160,000
 ($480,000) - ($480,000) - ($2,080,000) (1.00)
$1,600,000 $1,600,000 $1,600,000
 .625($480,000) - .05($480,000) - $2,080,000(.10)(1.00)
 $68,000
12
PROJECTING OR FORECASTING
FINANCIAL STATEMENTS
• Percent of Sales Method:
make projections based on the assumption
that certain costs and selected balance sheet
items are best expressed as a percentage of
sales
• Constant Ratio Method:
variant of the percent of sales method that
projects selected cost and balance items at the
same growth rate as sales
13
• Financial Forecasting Process To Project
Financial Statements
1. Forecast sales
2. Project income statement
3. Project balance sheet
4. Project statement of cash flows
14
GAME TOY INCOME
STATEMENTS
(2008 Actual, 2009 Projected)
ACTUAL FORECAST
2008 2009
Sales $1,600,000 1.3 x 2001 sales $2,080,000
CGS 960,000 .60 x 2002 sales 1,248,000
Gross Profit 640,000 832,000
Marketing Exp 160,000 .10 x 2002 sales 208,000
G & A Exp 152,000 Fixed costs 152,000
Deprec. Exp 48,000 .030 x 2002 sales 62,400
EBIT 280,000 409,600
Less Interest 13,300 Initially fixed 13,300
EBT 266,700 396,300
Less Taxes @ 40% 106,700 40% of EBT 158,500
Net Income 160,000 237,800
-Cash Distrib. 0
\__________ 0
\__________
Added RE 160,000 237,800
15
GAME TOY BALANCE SHEETS
(2008 Actual, 2009 Projected)
ACTUAL FORECAST
2008 2009
Cash $16,000 .01 x 2002 sales $20,800
A/R 184,000 .115 x 2002 sales 239,200
Inventories 320,000 .20 x 2002 sales 416,000
Total C/A 520,000 .325 x 2002 sales 676,000
Net P & E 480,000 .300 x 2002 sales 624,000
Total Assets 1,000,000
__- .625 x 2002 sales 1,300,000
__-
A/P 48,000 .03 x 2002 sales 62,400
Accrued Liabilities 32,000 .02 x 2002 sales 41,600
Bank Loan 120,000 120,000
Total C/L 200,000 224,000
Common Equity 800,000 +237800 1,037,800
Addt'l Funds Needed 0 38,200
Total Liab & OE $1,000,000
___ $1,300,000
___
16

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Course : ENTR6346 – Entrepreneurial Finance

PROJECTED FINANCIAL STATEMENT

• As a check on the cash budget, you can get the

Industry Probability of Sales

Optimistic forecast .30 X 60% = 18.0%

• Internally Generated Funds:

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