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Financial Analysis & Forecasting: Prepared by Matt H. Evans, CPA, CMA, CFM
Financial Analysis & Forecasting: Prepared by Matt H. Evans, CPA, CMA, CFM
Purpose of Spreadsheet:
To illustrate concepts related to financial analysis and forecasting. The financial analysis uses a combination of ratios and industry averages to evaluate the financial performance of the company. Trend line graphs are also generated, comparing the company's performance with the industry averages. Finally, the historical information is used to prepare a set of pro forma financial statements using both linear and non-linear functions. Required Inputs: You will need to collect financial statements for several reporting periods. If you want to benchmark the performance against the industry, then you will also need to collect industry averages. The spreadsheet is setup to capture five reporting periods (annual, quarterly, monthly). All input fields are highlighted in yellow. For best results, SEC Filings are suggested since these reports provide more detail than published financial statements. Note: A small red triangle in the upper right corner of a cell indicates that a comment has been inserted. Point your mouse over the cell and the comment will appear. If a cell appears in red, this indicates a warning concerning a calculation. Worksheets: This spreadsheet consists of the following worksheets, divided into three sections: A) Input Worksheets for financial analysis using historical data: Worksheet 2 3 4 5 Title General Input Balance Sheet Income Statement Cash Flow Statement
Purpose Enter general information here - used on several worksheets. Enter comparative balances sheets for up to five periods. Enter comparative income statements for up to five periods. Enter comparative cash flow statements for up to five periods.
Caution: If you enter less than five years of historical information, certain worksheet formulas may have to be revised. B) Output Worksheets for evaluating financial performance: 6 Key Financial Data Calculates key financial information for further analysis. 7 Ratio Analysis Calculates a series of ratios for further analysis. 8 Benchmark Analysis Compare ratio analysis to industry averages. 9 Horizontal Analysis Horizontal analysis with corresponding trend lines. 10 Vertical Analysis Common size financials in percentages and graphs. C) Pro Forma / Forecasted Financials for Budgeting: 11 12 13 Pro Forma - Simple Pro Forma - Regression Pro Forma - Exponential Set of pro forma financials using simple assumptions Set of pro forma financials using linear trending Set of pro forma financials using exponential smoothing
14 15 16
Example of Scenario Analysis and Goal Seek Analysis Preliminary budget analysis Set of budgets per various assumptions and forecasts.
Note: Some additional worksheets (Answer Reports 1 & 2) may appear in the spreadsheet due to the running of Solver. Macros: No macros have been used in this spreadsheet to give everyone some assurance that no viruses are contained in the spreadsheet. However, you are free to add your own macros to save time. Tools > Macro > Record New Macro Excel Functions: This spreadsheet uses certain financial functions (such as =TREND) which might not be found in your version of Microsoft Excel. To take full advantage of financial and statistical functions, you should install the Add On package titled: Analysis TookPak. Go to the main tool bar, select Tools => Add-Ins => check the Analysis TookPak option, insert your Excel CD and install the Analysis ToolPak. Also, you might want to install the Solver Add-in since this is useful for solving special forecasting issues (such as finding the optimal exponential factor). Compatibility: This spreadsheet was created with Microsoft Excel 2000. Older versions of Excel (such as 97) may not be compatible with this spreadsheet. Corrections: With any attempt to build an Excel Model, I can easily make some mistakes. So if you have suggestions to make the model better, drop me an email and Ill be glad to improve the financial model. My email address is:
matt@exinfm.com
ed on several worksheets. s for up to five periods. nts for up to five periods. ments for up to five periods. certain worksheet
mple assumptions
xponential smoothing
Number of Days in Reporting Period are What reporting periods will be entered?
Most Current Period Previous Period 2nd Previous Period 3rd Previous Period 4th Previous Period
(1999, July 1998, 6/30/97, etc.) (1999, July 1998, 6/30/97, etc.) (1999, July 1998, 6/30/97, etc.) (1999, July 1998, 6/30/97, etc.) (1999, July 1998, 6/30/97, etc.) 5
How are the amounts expressed in the financial statements? (such as: in millions of dollars, thousands of Canadian dollars, etc.) 2-10 millions of dollars
Description Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities Preferred Equity
Page 7
Description Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Shareholder Equity Total Liabilities & Equity Check: Assets = Liab + Equity ? Comment =>
NonDepreciable Fixed Assets Deferred Taxes Goodwill Write Off No of Common Shares o/s Par Value of Common Stock No of Preferred Shares o/s Par Value of Preferred Stock Market Price of Common Stock Market Price of Preferred Stock Preferred Dividends in Arrears Liquidating value of Preferred Stk Book Value per Share Dividends per Common Share Dividend Payout Ratio Cash Dividends to Preferred Stock
Page 8
Page 9
Description Net Sales Other Operating Revenues Total Revenues Cost of Goods Sold Other Operating Expenses Total Direct Expenses Selling, General & Administrative Operating Income Interest Expenses Foreign Exchange (Loss) Gain Associated Company (Loss) Gain Other NonOperating (Loss) Gain Income Tax Expense Reserve Charges Income Before Extra Ord Items Extra Ordinary Items (Loss) Gain Tax Effects of Extraordinary Items Minority Interests Net Income Primary EPS Earnings Before Int & Taxes Depreciation & Amortization Research & Devel Expenses Capitalized Interest Expense Interest Income Total Non Operating Expenses
Page 10
Page 11
Description Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Cash Flow from Operations Capital Expenditures Acquisition in Other Co's Proceeds from Sales of Assets Purchases of Investments Sale of Investments Other Investment Activities Cash Provided (Used) from Investmts Proceeds from Borrowings Payments on Borrowings Dividends Paid to Shareholders Proceeds from Minority Interest Issue Stock / Exercise Options Purchase / Retire Common Stock Other Financing Activities Cash Provided (Used) from Financing Increase (Decrease) to Cash Beginning Cash Balance
Page 12
Description Ending Cash Balance Check: Should agree to Balance Sheet Comment =>
Page 13
Description EBITDA : Income before ExtraOrd Items Interest Expense Capitalized Interest Expense Income Tax Expense Reserve Charges Depreciation and Amortization EBITDA EBITDA Margin Free Cash Flow: Operating Cash Flow Investment Cash Flows Preferred Dividends Paid (fixed) Redemption of Fixed Obligations Other Critical Outlays Free Cash Flow Working Capital: Current Assets Current Liabilities Working Capital Liquid Capital: Cash and Cash Equivalents Marketable Securities Accounts Receivable Notes Receivable Total Current Liabilities Long Term Debt Preferred Equity Liquid Capital
The following valuation indicators are very simple and basic; they are used as quick, rough estmates. Market Capitalization: Market Cap - Common Stk Market Cap - Preferred Stk Total Market Capitalization Present Value: Normalized Cash Flow Weight %'s Normalized Cash Flow
5.00%
10.00%
15.00%
30.00%
40.00% 794
Description Number of Future Periods Required Rate of Return Present Value of Free Cash Flow Present Value of Selling Price Present Value of Business Revenue Multiplier: Recent Gross Revenues Average Competitive Rev Multiplier Value based on Revenue Multiple Capitalization of Earnings: Normalized Net Income Weights % Normalized Net Income Capitalization Rate Nominal Growth Rate Net Capitalization Rate Value based on Earnings
5.00%
5.00%
25.00%
30.00%
Title of Ratio Acid Test Ratio Current Ratio Operating Cash Flow to Net Income Liquidity Index: Cash - Days Removed Cash Balance Cash Balance Total Marketable Sec - Days Removed Marketable Securities Balance Marketable Securities Total Receivables - Days Removed Receivable Balance Receivable Balance Total Inventory - Days Removed Inventory Balance Inventory Balance Total Other - Days Removed Other Current Assets Balance Other Current Assets Total Liquidity Index (Days) Z Score: 1.2 x (working capital / total assets) 1.4 x (retained earn / total assets) 3.3 x (EBIT / total assets) .6 x (market value equity / b.v. debt) .999 x (sales / total assets) Z Score
Receivable Turnover: Credit Sales Average Receivable Balance Receivable Turnover Days Required to Collect A/R
Inventory Turnover: Average Inventory Balance Inventory Turnover Days in Inventory Total Asset Turnover
Gross Profit Margin Operating Margin Net Profit Margin Direct Cost to Operating Revenues Capitalization Rate / Asset Return: Net Operating Income Total Investments / Operating Assets Capitalization Rate / Return Return on Shareholder Equity
0.36 0.50 33
0.41 0.63 50
0.42 0.63 39
0.41 0.57 37
0.43 0.53 35
You need to collect benchmark data on the respective industry for the subject company. Enter the benchmark data in the appropriate input cells. This information is used to Wksh12 generate trend line graphs in this worksheet. If you do not have any benchmark data, Wksh14 then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be null Wksh16 in the graph and show only the company specific ratio trend.
Wksh10
Ref 8-1 7-1 8-2 7-2 8-3 7-21 8-4 7-22 8-5 7-25 8-6 7-26 8-7 7-27 8-8 7-29 8-10 7-31 8-11 8-12 8-13 8-14 8-15 7-38 8-16
Description Acid Test Ratio - Industry Acid Test Ratio - Company Current Ratio - Industry Current Ratio - Company Receivable Turnover - Industry Receivable Turnover - Company Days to Collect A/R - Industry Days to Collect A/R - Company Inventory Turnover - Industry Inventory Turnover - Company Days in Inventory - Industry Days in Inventory - Company Asset Turnover - Industry Asset Turnover - Company Gross Profit Margin - Industry Gross Profit Margin - Company Net Profit Margin - Industry Net Profit Margin - Company Return on Total Assets - Industry Return on Total Assets - Company Return on Equity - Industry Return on Equity - Company Debt to Equity - Industry Debt to Equity - Company Times Interest Earned - Industry
Annual Period 1996 0.51 0.47 1.12 0.90 8.50 10.87 41 34 4.40 4.60 86 79 1.60 0.70 55.00% 58.96% 20.00% 24.22% 38.00% 30.00% 26.00% 23.93% 35% 50% 40
Annual Period 1997 0.52 0.40 1.10 0.80 8.70 12.26 39 30 4.45 5.96 88 61 1.55 0.78 52.00% 57.78% 23.00% 29.71% 36.00% 25.80% 22.00% 33.44% 38% 63% 38
Annual Period 1998 0.50 0.37 1.05 0.78 8.40 11.88 40 31 4.20 5.47 81 67 1.62 0.82 60.00% 61.11% 22.00% 29.44% 37.00% 26.51% 24.00% 35.28% 31% 63% 36
7-39
33
50
39
We added the following two ratios to assess if the Company has excessive growth: Provision for Taxes (790) (1,005) (2,050) Trading Ratio - Company 1.24 1.37 1.52 Trading Ratio - Industry 1.26 1.28 1.31 Net Sales to Net Worth - Company Net Sales to Net Worth - Industry 1.18 1.22 1.44 1.20 1.63 1.19
Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Hal Graphs appear below for each of the above comparisons:
Ratio
Ratio
50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1996 1997 1998 1999 2000 Periods
Periods
Periods
Periods
ubject company.
Annual Period 1999 0.49 0.38 1.08 0.79 8.20 11.37 41 32 4.30 5.10 89 72 1.68 0.77 62.00% 63.36% 19.00% 31.98% 34.00% 27.33% 19.00% 33.42% 34% 57% 39
Annual Period 2000 0.48 0.40 1.07 0.78 8.30 10.02 41 36 4.38 5.13 82 71 1.69 0.80 63.00% 62.96% 20.00% 28.06% 36.00% 23.23% 20.00% 25.89% 32% 53% 43
37
35
Receivable Turnover
Receivable Turnover
nventory Turnover -
nventory Turnover -
Days in Inventory -
Days in Inventory -
Description Growth in Net Sales Cost of Goods Sold Growth in Gross Profits Growth in Interest Expense Growth in Income Tax Expense Growth in Non Operating Expenses Growth in Minority Interest Growth in Net Income Growth in Earnings Per Share
Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Growth in Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings
3.08% 12.00% 26.70% 19.90% 26.70% 21.50% 17.80% 6.20% 0.00% 16.50% 32.50% 1.05% 26.20% 33.50% 16.70% 12.80% 38.02% 46.00%
-4.04% 50.00% 51.96% 35.32% 32.18% 29.01% 24.98% -11.11% -100.00% 10.00% 23.27% 24.58% 53.66% 52.50% 25.00% 19.05% 44.83% 50.86%
-5.16% -20.00% 18.06% 21.32% 19.13% 14.69% 24.02% -62.50% #DIV/0! -4.55% 22.14% 20.38% 4.44% 40.98% 66.67% 18.40% 18.09% 48.57%
10.77% -50.00% 22.95% 15.15% 20.44% 18.06% 23.69% 391.67% #DIV/0! 28.57% 27.19% 25.14% 17.63% 20.16% 20.00% 7.43% 16.47% 38.46%
-12.83% 83.33% 35.11% 8.42% -7.27% 10.39% 2.83% 53.39% 64.80% 44.44% 4.84% 6.01% 24.03% 14.52% 20.00% -18.18% 12.77% 9.72%
Other Longterm Liabilities Total Non Current Liabilities Growth in Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Growth in Total Equity (Net Worth) Sustainable Growth Rate #1 Sustainable Growth Rate #2 Growth in Market Capitalization
11.30% 37.10% 31.05% 0.00% 2.60% 1.50% 38.00% -166.00% 2.01% 6.11% 13.05% 10.88% 14.50%
15.38% 38.12% 42.85% #DIV/0! -1.91% -2.25% 38.32% -56.36% 3.91% 14.43% 20.53% 12.91% 24.69%
-6.53% 32.04% 22.08% #DIV/0! 3.19% 5.29% 39.57% -558.33% 1.37% 19.21% 21.36% 13.91% 29.39%
26.96% 36.02% 22.52% #DIV/0! 1.01% 9.05% 52.95% 290.36% 2.70% 27.00% 23.47% 9.94% -6.32%
11.80% 10.13% 11.87% #DIV/0! 1.44% 0.04% 32.92% 213.09% 1.97% 2.00% 18.06% 7.83% -14.00%
Account Title Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Current Assets Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total NonCurrent Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity Total Liabilities & Equity
Annual Period 1996 5.77% 0.06% 5.95% 5.86% 5.07% 22.72% 74.22% 2.10% 0.38% 0.58% 77.28% 100.00% 11.96% 7.00% 0.07% 6.12% 25.15% 6.77% 3.79% 10.56% 35.71% 0.00% 11.92% 29.24% 29.73% 1.60% -8.19% 64.29% 100.00%
expressed in percentages Annual Annual Annual Period Period Period 1997 1998 1999 4.45% 0.07% 7.26% 6.37% 5.38% 23.53% 74.46% 1.50% 0.00% 0.51% 76.47% 100.00% 14.75% 8.57% 0.07% 5.85% 29.24% 8.19% 3.51% 11.70% 40.94% 0.00% 9.39% 22.94% 33.01% 0.56% -6.84% 59.06% 100.00% 3.50% 0.05% 7.12% 6.42% 5.33% 22.41% 76.71% 0.47% 0.00% 0.41% 77.59% 100.00% 12.79% 10.03% 0.10% 5.76% 28.68% 10.11% 2.73% 12.84% 41.52% 0.00% 8.05% 20.06% 38.27% -2.14% -5.76% 58.48% 100.00% 3.10% 0.02% 6.99% 5.90% 5.13% 21.14% 75.83% 1.83% 0.78% 0.42% 78.86% 100.00% 12.03% 9.63% 0.09% 4.94% 26.69% 11.19% 2.77% 13.95% 40.65% 0.00% 6.49% 17.48% 46.77% -6.67% -4.72% 59.35% 100.00%
Annual Period 2000 2.55% 0.03% 8.91% 6.04% 4.49% 22.02% 73.55% 2.65% 1.21% 0.57% 77.98% 100.00% 14.07% 10.41% 0.11% 3.81% 28.40% 11.58% 2.92% 14.50% 42.89% 0.00% 6.21% 16.50% 58.64% -19.71% -4.54% 57.11% 100.00%
Total Revenues
100.00%
100.00%
100.00%
100.00%
100.00%
Cost of Goods Sold Gross Profit Operating Expenses Non Operating Expenses Income Before Extra Ord Items Net Income
Enter Your Forecast Periods => Pro Forma Income Statement Gross Revenues Growth Assumptions Cost of Goods Sold Growth Assumptions Operating Expenses Growth Assumptions NonOperating Expenses ExtraOrdinary Items Net Income
Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions in Other Co's Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash
60 2,100 0 2,160
20 1,900 0 1,920
25 1,800 0 1,825
35 1,700 0 1,735
1,300 20 0 1,320
1,000 60 0 1,060
950 80 0 1,030
750 90 0 840
Cash Flow Applied for Financing: Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance
Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital 943 0 3,074 2,459 1,998 8,475 31,600 (3,480) 28,120 1,705 912 200 30,937 39,412 5,226 3,689 30 1,845 10,790 3,750 700 4,450 15,240 0 2,200 5,700 1,740 0 3,443 2,754 2,238 10,175 34,600 (3,970) 30,630 3,105 1,662 240 35,637 45,812 5,853 4,132 30 2,066 12,081 3,750 750 4,500 16,581 0 2,200 5,700 1,765 0 3,856 3,085 2,507 11,213 37,700 (4,470) 33,230 5,705 2,862 320 42,117 53,330 6,556 4,627 25 2,314 13,522 4,100 800 4,900 18,422 0 2,200 5,700 1,857 0 4,319 3,455 2,807 12,438 40,400 (4,990) 35,410 9,905 3,512 400 49,227 61,665 7,342 5,183 20 2,591 15,136 4,350 800 5,150 20,286 0 2,200 5,700 1,740 0 4,837 3,870 3,144 13,591 43,000 (5,540) 37,460 15,205 3,862 650 57,177 70,768 8,223 5,805 15 2,902 16,945 4,500 800 5,300 22,245 0 2,200 5,700
Enter Your Forecast Periods => Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity External Financing Required (EFR)
A set of pro forma (forecasted) financial statements are generated using the results of the historical analysis in the previous worksheets. A statistical method known as active linear regression is used to predict future values. If you have important assumptions Wksh14 that are important to the forecast, then these assumptions should over-ride the Wksh16 linear calculations since we want our forecast to be as accurate as possible. Key Point => If your historical information has gradual trends, then linear regression is an appropriate model for forecasting. However, if your historical information has distinct steps up or down, then you should consider using a smoothing model .
Wksh10
Before we adopt a regression model, it's a good idea to generate a scatter graph of the actual data and observe if there is a clear trend for fitting a straight regression line into the data:
Total Revenues 30,000 25,000 20,000 15,000 10,000 5,000 0 1995 Total Revenues
Total Revenues
2000 Periods
2005
The calculation of linear values is determined by defining the slope of the line and the y intercept: Order Total Rev Linear Formula for Linear Trendline: Year variable x actual y Value y 1996 1 12,076 12,683 y=(m*x)+b 1997 2 16,719 16,559 1998 3 21,196 20,435 m: slope of line 1999 4 24,737 24,311 x: independent variable 2000 5 27,448 28,188 b: y intercept 2001 6 32,064 2002 7 35,940 2003 8 39,816 2004 9 43,692 2005 10 47,569 The degree of linear fit with the actual data can be expressed as R Square 0.9888
Pro Forma Income Statement 12-1 12-2 12-3 12-4 12-5 4-25 Gross Revenues Cost of Goods Sold Operating Expenses Operating Income Non Operating Expenses Extra Ordinary Items Net Income 32,064 (11,607) (7,750) 12,707 (3,549) 271 9,429 35,940 (12,847) (8,693) 14,400 (4,088) 271 10,584 39,816 (14,087) (9,636) 16,093 (4,627) 271 11,738 43,692 (15,327) (10,579) 17,786 (5,166) 271 12,892
Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock
60 2,100 0 2,160
20 1,900 0 1,920
25 1,800 0 1,825
1,300 20 0 1,320
1,000 60 0 1,060
950 80 0 1,030
750 90 0 840
Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance
Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity External Financing Required (EFR) 1,794 0 3,206 2,565 2,084 9,649 31,600 (3,480) 28,120 1,705 912 200 30,937 40,586 5,451 3,848 30 1,924 11,252 3,750 700 4,450 15,702 0 2,200 5,700 26,934 (5,000) (3,550) 26,284 (1,401) 3,156 0 3,594 2,875 2,336 11,962 34,600 (3,970) 30,630 3,105 1,662 240 35,637 47,599 6,110 4,313 30 2,156 12,609 3,750 750 4,500 17,109 0 2,200 5,700 34,518 (4,000) (5,550) 32,868 (2,379) 3,756 0 3,982 3,185 2,588 13,511 37,700 (4,470) 33,230 5,705 2,862 320 42,117 55,628 6,769 4,778 25 2,389 13,961 4,100 800 4,900 18,861 0 2,200 5,700 42,256 (2,500) (7,050) 40,606 (3,838) 3,796 0 4,369 3,495 2,840 14,501 40,400 (4,990) 35,410 9,905 3,512 400 49,227 63,728 7,428 5,243 20 2,622 15,312 4,350 800 5,150 20,462 0 2,200 5,700 49,648 (1,500) (8,050) 47,998 (4,732)
35 1,700 0 1,735
3,243 0 4,757 3,805 3,092 14,897 43,000 (5,540) 37,460 15,205 3,862 650 57,177 72,074 8,087 5,708 15 2,854 16,664 4,500 800 5,300 21,964 0 2,200 5,700 56,694 (500) (8,550) 55,544 (5,433)
Exponential Smoothing and Weighted Moving Averages for Total Revenues: Years => 1996 1997 1998 Total Revenues - Historical 12,076 16,719 21,196 Total Revenues - Exponential 12,076 12,076 16,719 Total Revenues - Wt Moving Avg 11,105 15,230 18,890 Smoothing Factor must be between 0 and 1 Set Smoothing Factor Assign weights to appropriate periods Find the Optimal Smoothing Factor: Total Exponent Revenues Amounts 12,076 12,076 16,719 12,076 21,196 16,719 24,737 21,196 27,448 24,737 Mean Squared Error Difference 0 4,643 4,477 3,541 2,711 0 1.00 0.00% 1 Total weights should add 1.50% 4.50%
Find the Optimal Moving Weights: Total Weighted Revenues Amounts 12,076 11,105 16,719 15,230 21,196 18,890 24,737 21,605 27,448 22,965 Mean Squared Error Difference 971 1,489 2,306 3,132 4,483
Exponential Comparison
30,000 Total Revenues 25,000 20,000
Total Revenues Historical
Total Revenues
20,000 15,000
10,000 5,000
0 2001 2002 2003 2004 2005 Periods
Annual Period 2001 Pro Forma Income Statement Gross Revenues Cost of Goods Sold Operating Expenses Operating Income NonOperating Expenses ExtraOrdinary Items Net Income 26,070 (10,197) (6,346) 9,527 (3,200) 650 6,977
Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash
60 2,100 0 2,160
20 1,900 0 1,920
Planned Investments: Capital Expenditures Acquisitions Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance
1,300 20 0 1,320
2,000 60 0 2,060
3,000 80 0 3,080
Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities 1,862 0 2,607 2,086 1,695 8,249 31,600 (3,480) 28,120 705 912 75 29,812 38,061 4,432 3,128 30 1,564 9,155 3,750 700 2,488 0 2,641 2,113 1,717 8,959 34,600 (3,970) 30,630 1,605 1,662 100 33,997 42,956 4,490 3,170 30 1,585 9,274 3,950 750 2,159 0 2,632 2,105 1,711 8,606 37,700 (4,470) 33,230 2,705 2,162 150 38,247 46,853 4,474 3,158 25 1,579 9,236 4,450 800
Total Non Current Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity External Financing Required (EFR)
oving Average)
2001
2002
2003
2004
2005
26,413
26,316
26,355
26,340
l Revenues -
l Revenues -
l Revenues -
25 1,800 0 1,825
35 1,700 0 1,735
4,500 90 0 4,590
3,497 0 2,636 2,108 1,713 9,955 41,600 (4,990) 36,610 1,905 2,162 150 40,827 50,782 4,480 3,163 20 1,581 9,244 4,950 800
4,728 0 2,634 2,107 1,712 11,181 46,200 (5,540) 40,660 1,205 2,162 100 44,127 55,308 4,478 3,161 15 1,580 9,234 5,950 800
We can copy our forecast into a new worksheet and do scenario analysis and goal-seek analysis. Although Microsoft Excel includes Scenario Manager, it can be easier and quicker to simply do our Wksh12 scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding active formula in another cell.
Wksh10 Wksh16
Pro Forma Income Statement (Simple Projection Method) Scenario => Non Operating Expenses will decline by $ 100,000 in year 2003 and again in year 2005: Gross Revenues Cost of Goods Sold Operating Expenses NonOperating Expenses ExtraOrdinary Items Net Income 30,742 (12,024) (7,483) (3,200) 650 8,685 34,431 (13,467) (8,381) (3,200) 650 10,033 38,562 (15,083) (9,387) (3,100) 650 11,643
Instead of copying our forecast into this worksheet, we can simply do scenario analysis directly in the forecast itself. Pro Forma Income Statement (Linear Trend Method) Goal Seek => What total revenues are required if Net Income must be $ 13.5 million in Year 2004? Gross Revenues Cost of Goods Sold Operating Expenses Non Operating Expenses Extra Ordinary Items Net Income (formula cells) 32,064 (11,607) (7,750) (3,549) 271 9,430 35,940 (12,847) (8,693) (4,088) 271 10,584 39,816 (14,087) (9,636) (4,627) 271 11,738
Do not change formula cells (goals) to when using Goal Seek (Tools > Goal S
This is the target cell that Goal Seek is to change per the value 13,500 in cell
ysis and goal-seek analysis. and quicker to simply do our a cell given a corresponding
ar 2003 and again in year 2005: 43,190 (16,893) (10,513) (3,100) 700 13,384 48,373 (18,920) (11,775) (3,000) 700 15,378
e $ 13.5 million in Year 2004? 44,301 (15,327) (10,579) (5,166) 271 13,500 47,569 (16,567) (11,522) (5,705) 271 14,046
Do not change formula cells (goals) to values when using Goal Seek (Tools > Goal Seek)
This is the target cell that Goal Seek is seeking to change per the value 13,500 in cell G34
Annual Period 2001 Summarize Revenue Forecast: Simple Projection Model Linear Trend Model Wt Moving Avg Model Declining Growth Model Historical Data Projection using declining growth rates: Gross Revenues 29,644
31,422
32,679
Forecast Comparisons
60,000 50,000 Total Revenues 40,000 30,000 20,000 10,000
Wt Moving Avg Model Declining Growth Model Historical Data Simple Projection Model Linear Trend Model
0
2001 2002 2003 2004 2005 Periods
In addition to using linear models for forecasting, we can apply several non-linear (curve) models: Logarithmic - Used when rate of change in data suddenly shifts upward or downward. Power - Used when rate of change in data occurs at a specific rate. Exponential - Used when rate of change is increasing or decreasing at ever higher rates.
Logarithmic Trend Formula for Logarithmic Trendline y = ( c * LN (x)) - b LN: Natural Logarithm x factor 1 2 3 4 5 6 7 8 9 10 Actual Values 12,076 16,719 21,196 24,737 27,448 Predicted Value y (11,242) (4,587) (695) 2,067 4,210 5,960 7,440 8,722 9,853 10,865
Power Trendline y = b * x^c x factor 1 2 3 4 5 6 7 8 9 10 Exponential Trendline x factor y = b * EXP ( c * x ) 1 2 3 4 5 6 7 8 9 10 Actual Values 12,076 16,719 21,196 24,737 27,448 Predicted Value y 13,061 16,007 19,618 24,043 29,465 36,111 44,256 54,238 66,472 81,464 Actual Values 12,076 16,719 21,196 24,737 27,448 Predicted Value y 11,951 17,109 21,104 24,493 27,491 30,212 32,721 35,063 37,267 39,356
Polynomial Trendline y = (c2 * x^2) + (c1 * x^1) + b x factor 1 2 3 4 Actual Values 12,076 16,719 21,196 24,737 Predicted Value y 11,997 16,902 21,121 24,654
5 6 7 8 9 10
27,448
Summarize Non Linear Curves on Graph: Logarithmic Trendline Power Trendline Exponential Trendline Polynomial Trendline Actual Revenues 1996 (11,242) 11,951 13,061 11,997 12,076 1997 (4,587) 17,109 16,007 16,902 16,719 1998 (695) 21,104 19,618 21,121 21,196
Variance Analysis of Past Budgets: Accuracy in the budget process should be examined to determine the degree of error or variance in the budget process. If the variance is high, this indicates a need to improve planning techniques within the company. TBD: To be Determined
1996 Income Statement Items Total Revenues - Budgeted Total Revenues - Actual % difference from actual Cost of Goods Sold - Budgeted Cost of Goods Sold - Actual % difference from actual Operating Income - Budgeted Operating Income - Actual % difference from actual Net Income - Budgeted Net Income - Actual % difference from actual Balance Sheet Items Current Assets - Budgeted Current Assets - Actual % difference from actual NonCurrent Assets - Budgeted NonCurrent Assets - Actual % difference from actual Current Liabilities - Budgeted Current Liabilities - Actual % difference from actual NonCurrent Liabilities - Budgeted NonCurrent Liabilities - Actual % difference from actual Ratio Items Current Ratio - Budgeted Current Ratio - Actual % difference from actual Total Asset Turnover - Budgeted Total Asset Turnover - Actual % difference from actual Gross Profit Margin - Budgeted Gross Profit Margin - Actual % difference from actual Net Profit Margin - Budgeted Net Profit Margin - Actual % difference from actual 10,500 12,076 -13% (4,500) (4,950) -9% 3,100 3,815 -19% 2,100 2,925 -28%
1997 14,500 16,719 -13% (6,500) (7,050) -8% 4,900 5,776 -15% 4,100 4,968 -17%
3,450 3,895 -11% 10,900 13,251 -18% 3,750 4,312 -13% 1,750 1,810 -3%
4,400 5,025 -12% 14,000 16,335 -14% 5,600 6,245 -10% 2,450 2,500 -2%
6,250 5,763 8% 22,000 19,951 10% 8,200 7,375 11% 3,750 3,301 14%
0.92 0.90 2% 0.68 0.70 -3% 60% 59% 2% 19% 24% -22%
0.79 0.80 -2% 0.72 0.78 -8% 60% 58% 4% 25% 30% -16%
0.76 0.78 -2% 0.80 0.82 -3% 60% 61% -2% 28% 29% -5%
Debt to Common Equity - Budgeted Debt to Common Equity - Actual % difference from actual Return on Equity - Budgeted Return on Equity - Actual % difference from actual
We can use specific measurements to track and control forecasting errors: Mean Absolute Error - An absolute value of forecast errors, does not place weight on the amount of the error. Calculated as the sum of (actual values - predicted values) / n. Mean Square Error - Similar to Mean Absolute Error, but does place more emphasis on the amount of error; i.e. an error of 8 is twice as significant as 4. Calculated as the sum of (actual values - predicted values)^2 / n. Root Mean Square Error - To make the Mean Square Error useful and comparable to the Mean Absolute Error, we can take the square root of the Mean Square Error. We can then use this as a guide to establish an error limit or standard for flagging unacceptable errors. Actual Forecasted Example: Total Revenues Period Revenues Revenues n: total number of periods 1996 12,076 10,500 1997 16,719 14,500 1998 21,196 22,500 1999 24,737 28,500 2000 27,448 30,000 n => 5 Sum => Mean Absolute Error Mean Square Error Root Mean Sqr Error Establish Error Limits
33,170
31,000
Simple Projection Linear Trend Model Wt Moving Avg Declining Growth Historical Data
< - calculate using c and b factor - > Predicted ( c * x) EXP Value y 0.20339 1.2255504 13,061 0.40678 1.5019739 16,007 0.61017 1.8407448 19,618 0.81356 2.2559256 24,043 1.01695 2.7647506 29,465 1.22034 3.3883414 36,111 1.42373 4.1525833 44,256 1.62712 5.0892003 54,238 1.83051 6.2370717 66,472 2.03390 7.6438461 81,464
c2 c1 -342.85714 5933.34286
b 6406.6
rends
Logarithmic Trendline Power Trendline Exponential Trendline Polynomial Trendline Actual Revenues
1999 28,500 24,737 15% (9,650) (9,050) 7% 11,000 9,995 10% 9,000 7,911 14%
2000 30,000 27,448 9% (11,000) (10,150) 8% 10,500 10,150 3% 9,300 7,701 21%
(Wksht 16) 2001 30,500 TBD #VALUE! (11,929) TBD #VALUE! 11,146 TBD #VALUE! 7,986 TBD #VALUE!
7,900 7,511 5% 29,500 26,602 11% 9,400 9,687 -3% 5,100 4,945 3%
8,253 TBD #VALUE! 31,555 TBD #VALUE! 10,715 TBD #VALUE! 5,250 TBD #VALUE!
0.83 0.79 5% 0.80 0.77 4% 60% 63% -5% 30% 32% -6%
0.80 0.78 3% 0.79 0.80 -2% 60% 63% -5% 28% 28% 0%
0.77 TBD #VALUE! 0.77 TBD #VALUE! 0.61 TBD #VALUE! 26% TBD #VALUE!
and comparable to the Mean rror. We can then use this eptable errors. Error 1,576 2,219 (1,304) (3,763) (2,552) (3,824) Absolute 1,576 2,219 1,304 3,763 2,552 3,824 765 2,924,595 1,710 1,710 Error Squared 2,483,776 4,923,961 1,700,416 14,160,169 6,512,704 14,622,976
Mean Absolute Error Mean Square Error Root Mean Sqr Error Establish Error Limits
Ref
16-1 16-2 16-3 16-4 16-5 16-6 16-7 16-8 16-9 16-10
Total Revenues Cost of Goods Sold Operating Expenses Operating Income Interest Expenses Income Taxes Other Non Operating Expenses Earnings Before Extra Ord Items Extra Ordinary Items Net Income Financial Plan Budgeted Cash Flows
30,500 (11,929) (7,424) 11,146 (310) (3,300) (200) 7,336 650 7,986
Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets (Increase) Decrease Current Liab Operating Cash Flow Investment Sources of Cash: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions in Other Co's
16-22 16-23
(4,500) (350)
16-24 16-25
Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans and Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance Budgeted Balance Sheet
(2,500) (7,350)
1,450 15 0 1,465
16-38 16-39 16-40 16-41 16-42 16-43 16-44 16-45 16-46 16-47 16-48 16-49 16-50 16-51 16-52 16-53 16-54 16-55 16-56 16-57 16-58 16-59 16-60
Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities
770 10 3,050 2,440 1,983 8,253 32,600 (3,480) 29,120 1,205 1,000 230 31,555 39,808 5,185 3,660 40 1,830 10,715 4,150 1,100 5,250 15,965
Preferred Stock Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Translation Treasury Stock Total Equity Total Liabilities and Equity External Financing Required
a and placed it into a set of ssumptions for a final budget. ed in our forecast for improved finalize all assumptions et for planning purposes.
Based on review of Pro Forma Financials, Marketing, etc. Volume projections, production budgets, and vertical analysis Average % of Sales per Vertical Analysis
Based on anticipated levels of debt and past history Based on anticipated taxable income and effective rate Provision for contingency was added on this line item
Review of Simple Model Forecast and Capital Expenditure Budget Per Simple Forecast Model Same formula as used in forecast models Same formula as used in forecast models
Budgeted $ 4.5 million in Capital Expenditure Budget Per forecast, strategic plan, and other budgets
Per Financing Requirements and other budgets Per historical financials and investment budget
Per forecast and other budgets Per Simple Model Forecast Per strategic plan and other budgets
Per above Per historical financials Same formula as used in forecast models Same formula as used in forecast models Same formula as used in forecast models
Same formula as used in forecast models Same formula as used in forecast models Same formula as used in forecast models Per review of forecast and strategic plans Per review of forecast and historical balances
Same formula as used in forecast models Same formula as used in forecast models Per review of forecast and historical information Same formula as used in forecast models
Same formula as used in forecast models Per review of historical information and expected growth rates.
Per Simple Model Forecast Per Simple Model Forecast Same formula as used in forecast models Per Simple Model Forecast Same formula as used in forecast models
Microsoft Excel 9.0 Answer Report Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp) Report Created: 3/16/2002 3:42:28 PM
Target Cell (Min) Cell Name $G$60 Mean Squared Error Square
Constraints Cell Name $D$23 Smoothing Factor must be between 0 and 1 $D$24 Set Smoothing Factor
Cell Value
Microsoft Excel 9.0 Answer Report Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp) Report Created: 3/16/2002 5:19:05 PM
Name
Adjustable Cells Cell Name $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods
Constraints Cell Name $I$25 Assign weights to appropriate periods $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods
Cell Value 100.00% 0.00% 1.50% 4.50% 34.50% 59.50% 0.00% 1.50% 4.50% 34.50% 59.50%
Formula $I$25=$E$23 $D$25<=$E$23 $E$25<=$E$23 $F$25<=$E$23 $G$25<=$E$23 $H$25<=$E$23 $D$25>=$D$23 $E$25>=$D$23 $F$25>=$D$23 $G$25>=$D$23 $H$25>=$D$23
Status Slack Binding 0 Not Binding 1 Not Binding 0.985 Not Binding 0.955 Not Binding 0.655 Not Binding 0.405 Binding 0.00% Not Binding 1.50% Not Binding 4.50% Not Binding 34.50% Not Binding 59.50%