Workbook1 2

Financial Analysis & Forecasting
Purpose of Spreadsheet:
Prepared by Matt H. Evans, CPA, CMA, CFM

Revised:
11/22/2002
active
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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.
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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:
Key Financial Data
6
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.
Vertical Analysis
10
Common size financials in percentages and graphs.
C) Pro Forma / Forecasted Financials for Budgeting:
11
Pro Forma - Simple
Set of pro forma financials using simple assumptions
12
13
14
15
16
Pro Forma - Regression

Pro Forma - Exponential
Scenario Analysis
Budget Analysis
Final Budgets
Set of pro forma financials using linear trending

Set of pro forma financials using exponential smoothing
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
CPA, CMA, CFM

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ed on several worksheets.
s for up to five periods.
nts for up to five periods.
ments for up to five periods.
certain worksheet
n for further analysis.

her analysis.
ding trend lines.

ages and graphs.
mple assumptions
near trending
xponential smoothing
Goal Seek Analysis
tions and forecasts.
General Input Panel
Home
The following general information should be entered:

Note: Sample data has been entered in the input cells to help you get started.
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2-1
Name of Company => X Y Z Corporation USA
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2-2
Reporting Periods =>
Annual
(Annual, Semi-annual, Quarterly or Monthly)
2-3
Number of Days in Reporting Period are
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365
What reporting periods will be entered?

2-4
2-5
2-6
2-7
2-8
Most Current Period

Previous Period
2nd Previous Period
3rd Previous Period
4th Previous Period
2000
1999
1998
1997
1996
(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.)
2-9
Number of historical periods to be analyzed
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
active
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Balance Sheet for

X Y Z Corporation USA
Description
Annual
Period
1996
Annual
Period
1997
millions of dollars
Annual
Period
1998
Annual
Period
1999
Annual
Period
2000
Cash and Cash Equivalents

Short Term Marketable Securities
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets
990
10
1,020
1,005
870
3,895
950
15
1,550
1,360
1,150
5,025
901
12
1,830
1,650
1,370
5,763
998
6
2,250
1,900
1,650
6,804
870
11
3,040
2,060
1,530
7,511
Fixed Assets
Accumulated Depreciation
Net Fixed Assets
Longterm Investments
Investments in Other Companies
Intangibles and Other Assets
Total Non Current Assets
Total Assets
14,006
(1,280)
12,726
360
65
100
13,251
17,146
17,605
(1,700)
15,905
320
0
110
16,335
21,360
21,826
(2,100)
19,726
120
0
105
19,951
25,714
26,950
(2,550)
24,400
590
250
135
25,375
32,179
28,100
(3,010)
25,090
905
412
195
26,602
34,113
Accounts Payable
Short Term Borrowings
Short Term Portion of LT Debt
Other Current Liabilities
Total Current Liabilities
2,050
1,200
12
1,050
4,312
3,150
1,830
15
1,250
6,245
3,290
2,580
25
1,480
7,375
3,870
3,100
30
1,590
8,590
4,800
3,550
36
1,301
9,687
Longterm Debt / Borrowings

Other Longterm Liabilities
Total Non Current Liabilities
Total Liabilities
1,160
650
1,810
6,122
1,750
750
2,500
8,745
2,600
701
3,301
10,676
3,600
890
4,490
13,080
3,950
995
4,945
14,632
Prepared by Matt H. Evans 07/13/2015
Page 7
Balance Sheet for

Description
Annual
Period
1996
Annual
Period
1997
millions of dollars
Annual
Period
1998
Annual
Period
1999
Annual
Period
2000
Preferred Equity
Common Equity
Additional Paid in Capital
Retained Earnings
Adj for Foreign Currency Transl
Treasury Stock
Total Shareholder Equity
0
2,044
5,013
5,097
275
(1,405)
11,024
0
2,005
4,900
7,050
120
(1,460)
12,615
0
2,069
5,159
9,840
(550)
(1,480)
15,038
0
2,090
5,626
15,050
(2,147)
(1,520)
19,099
0
2,120
5,628
20,005
(6,722)
(1,550)
19,481
Total Liabilities & Equity
17,146
21,360
25,714
32,179
34,113
0
Balances
0
Balances
0
Balances
0
Balances
0
Balances
0
112
0
1,320
$10.00
0
0
101
0
1,290
$10.00
0
0
90
0
1,302
$10.00
0
0
98
0
1,345
$10.00
0
0
109
0
1,322
$10.00
0
$22.65
$0.00
0
0
$8.35
$1.01
$28.90
$0.00
0
0
$9.78
$1.49
$37.05
$0.00
0
0
$11.55
$1.89
$33.60
$0.00
0
0
$14.20
$1.75
$29.40
$0.00
0
0
$14.74
$1.76
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
Page 8
Balance Sheet for

Description
Dividend Payout Ratio
Cash Dividends to Preferred Stock
Cash Dividends to Common Stock
Total Dividends Paid
Annual
Period
1996
Annual
Period
1997
45.47%
0
1,330
1,330
38.61%
0
1,918
1,918
millions of dollars
Annual
Period
1998
39.44%
0
2,461
2,461
Annual
Period
1999
29.76%
0
2,354
2,354
Annual
Period
2000
30.24%
0
2,329
2,329
Page 9
Income Statement for

Annual
Period
1996
12,060
16
12,076
(4,950)
(11)
(4,961)
(3,300)
3,815
Annual
Period
1997
16,700
19
16,719
(7,050)
(13)
(7,063)
(3,880)
5,776
millions of dollars
Annual
Period
1998
21,170
26
21,196
(8,233)
(17)
(8,250)
(4,637)
8,309
Annual
Period
1999
24,700
37
24,737
(9,050)
(22)
(9,072)
(5,670)
9,995
Annual
Period
2000
27,400
48
27,448
(10,150)
(28)
(10,178)
(7,120)
10,150
Interest Expenses
Foreign Exchange (Loss) Gain
Associated Company (Loss) Gain
Other NonOperating (Loss) Gain
Income Tax Expense
Reserve Charges
Income Before Extra Ord Items
(117)
0
0
0
(790)
0
2,908
(122)
0
0
17
(1,005)
0
4,666
(216)
0
(22)
0
(2,050)
0
6,021
(282)
0
0
0
(2,105)
0
7,608
(304)
0
0
0
(2,660)
0
7,186
Extra Ordinary Items (Loss) Gain

Tax Effects of Extraordinary Items
Minority Interests
Net Income
0
0
17
2,925
0
0
302
4,968
0
0
219
6,240
0
0
303
7,911
0
0
515
7,701
Primary EPS
Earnings Before Int & Taxes
Depreciation & Amortization
Research & Devel Expenses
Capitalized Interest Expense
Interest Income
$2.22
3,832
(310)
0
(16)
4
$3.85
6,095
(420)
0
(19)
6
$4.79
8,506
(400)
0
(33)
11
$5.88
10,298
(450)
0
(39)
19
$5.83
10,665
(460)
0
(30)
27
Description
Net Sales
Other Operating Revenues
Total Revenues
Cost of Goods Sold
Other Operating Expenses
Total Direct Expenses
Selling, General & Administrative
Operating Income
Page 10
Income Statement for

Description
Total Non Operating Expenses
Total Extra Ordinary Items
Tax Rate
Annual
Period
1996
(907)
17
21.36%
Annual
Period
1997
(1,110)
302
17.78%
millions of dollars
Annual
Period
1998
(2,288)
219
25.33%
Annual
Period
1999
(2,387)
303
21.67%
Annual
Period
2000
(2,964)
515
27.02%
Page 11
Cash Flow Statement for

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
Annual
Period
1996
millions of dollars
Annual
Period
1998
Annual
Period
1997
Annual
Period
1999
Annual
Period
2000
2,925
310
(2)
(55)
(162)
206
3,222
4,968
420
11
0
(1,130)
1,933
6,202
6,240
400
11
45
(738)
1,130
7,088
7,911
450
(8)
0
(1,041)
1,215
8,527
7,701
460
(11)
0
(707)
1,097
8,540
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
(1,455)
(135)
112
(712)
162
33
(1,995)
(2,750)
0
35
(1,979)
129
(166)
(4,731)
(3,880)
0
0
(1,801)
330
61
(5,290)
(5,220)
0
150
(2,314)
221
(12)
(7,175)
(4,108)
0
182
(2,609)
50
0
(6,485)
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
1,070
(1,112)
(1,330)
5
195
0
(75)
(1,247)
1,044
(650)
(1,918)
12
1
0
0
(1,511)
1,460
(898)
(2,461)
7
45
0
0
(1,847)
1,880
(801)
(2,354)
7
13
0
0
(1,255)
1,105
(961)
(2,329)
8
6
0
(12)
(2,183)
(20)
(40)
(49)
97
(128)
Increase (Decrease) to Cash
Page 12
Cash Flow Statement for

Description
Beginning Cash Balance
Ending Cash Balance
Check: Should agree to Balance Sheet
Comment =>
Annual
Period
1996
1,010
990
0
Balances
Annual
Period
1997
990
950
0
Balances
millions of dollars
Annual
Period
1998
950
901
0
Balances
Annual
Period
1999
901
998
0
Balances
Annual
Period
2000
998
870
0
Balances
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Key Financial Data for

Description
EBITDA :
Income before ExtraOrd Items
Interest Expense
Capitalized Interest Expense
Income Tax Expense
Reserve Charges
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:
Marketable Securities
Accounts Receivable
Notes Receivable
Long Term Debt
Preferred Equity
Liquid Capital
Annual
Period
1996
Annual
Period
1997
millions of dollars
Annual
Annual
Period
Period
1998
1999
Annual
Period
2000
2,908
117
16
790
0
310
4,141
4,666
122
19
1,005
0
420
6,232
6,021
216
33
2,050
0
400
8,720
7,608
282
39
2,105
0
450
10,484
7,186
304
30
2,660
0
460
10,640
34%
37%
41%
42%
39%
3,222
(1,995)
0
(1,112)
(35)
80
6,202
(4,731)
0
(650)
(45)
776
7,088
(5,290)
0
(898)
(42)
858
8,527
(7,175)
0
(801)
(30)
521
8,540
(6,485)
0
(961)
(25)
1,069
3,895
4,312
(417)
5,025
6,245
(1,220)
5,763
7,375
(1,612)
6,804
8,590
(1,786)
7,511
9,687
(2,176)
990
10
1,020
0
(4,312)
(1,160)
0
(3,452)
950
15
1,550
0
(6,245)
(1,750)
0
(5,480)
901
12
1,830
0
(7,375)
(2,600)
0
(7,232)
998
6
2,250
0
(8,590)
(3,600)
0
(8,936)
870
11
3,040
0
(9,687)
(3,950)
0
(9,716)
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
$29,898
$0.00
$29,898
$37,281
$0.00
$37,281
$48,239
$0.00
$48,239
$45,192
$0.00
$45,192
$38,867
$0.00
$38,867
5.00%
10.00%
15.00%
30.00%
40.00%
Key Financial Data for

Description
Normalized Cash Flow
Number of Future Periods
Required Rate of Return
Present Value of Free Cash Flow
Present Value of Selling Price
Present Value of Business
Annual
Period
1996
Annual
Period
1997
millions of dollars
Annual
Annual
Period
Period
1998
1999
$315,000 <= estimated selling price
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
Annual
Period
2000
794
15
11.00%
$5,711
$65,836
$71,547
27,448
3.14
$86,187
5.00%
25.00%
30.00%
35.00%
6,681
12.00%
3.50%
8.50%
$78,605
Operating Leverage
1.31
1.49
1.21
0.14
Financial Leverage
1.46
0.61
1.12
(0.65)
Total Leverage
1.92
0.91
1.36
(0.09)
1.92
0.91
1.36
(0.09)
Check Totals
5.00%
0.00
Ratio Analysis for

Title of Ratio
Annual
Period
1996
Annual
Period
1997
Annual
Period
1998
Annual
Period
1999
Annual
Period
2000
Acid Test Ratio
0.47
0.40
0.37
0.38
0.40
Current Ratio
0.90
0.80
0.78
0.79
0.78
Operating Cash Flow to Net Income
1.10
1.25
1.14
1.08
1.11
0
990
0
11
10
110
34
1,020
34,257
79
1,005
79,745
16
870
13,920
33
0
950
0
12
15
180
30
1,550
46,158
61
1,360
83,261
22
1,150
25,300
31
0
901
0
16
12
192
31
1,830
56,217
67
1,650
110,092
26
1,370
35,620
35
0
998
0
15
6
90
32
2,250
72,213
72
1,900
136,018
21
1,650
34,650
36
0
870
0
14
11
154
36
3,040
110,751
71
2,060
146,676
19
1,530
29,070
38
(0.03)
0.42
0.74
15.46
0.70
17.29
(0.07)
0.46
0.94
12.78
0.78
14.90
(0.08)
0.54
1.09
11.13
0.82
13.51
(0.07)
0.65
1.06
7.53
0.77
9.94
(0.08)
0.82
1.03
5.90
0.80
8.48
11,520
1,060
10.9
15,750
1,285
12.3
20,080
1,690
11.9
23,200
2,040
11.4
26,500
2,645
10.0
34
30
31
32
36
1,046
4.6
1,183
6.0
1,505
5.5
1,775
5.1
1,980
5.1
79
61
67
72
71
0.7
0.8
0.8
0.8
0.8
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
Ratio Analysis for

Title of Ratio
Annual
Period
1996
Annual
Period
1997
Annual
Period
1998
Annual
Period
1999
Annual
Period
2000
Operating Assets Ratio
0.97
0.98
0.99
0.97
0.96
Gross Profit Margin
59%
58%
61%
63%
63%
Operating Margin
32%
35%
39%
40%
37%
Net Profit Margin
24%
30%
29%
32%
28%
Direct Cost to Operating Revenues
41%
42%
39%
37%
37%
3,000
16,621
18.05%
4,749
20,930
22.69%
6,204
25,489
24.34%
7,829
31,204
25.09%
7,408
32,601
22.72%
Return on Shareholder Equity
24%
33%
35%
33%
26%
Debt to Total Assets
0.36
0.41
0.42
0.41
0.43
Debt to Common Equity
0.50
0.63
0.63
0.57
0.53
33
50
39
37
35
10.2
7.5
7.7
5.7
5.0
2.7
3.0
3.2
2.4
2.0
Capitalization Rate / Asset Return:

Net Operating Income
Total Investments / Operating Assets
Capitalization Rate / Return
Times Interest Earned
Price to Earnings (P/E)

Price to Book Value
Stock Yield
4.45%
5.14%
5.10%
5.21%
5.99%
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Benchmark Analysis for

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
generate trend line graphs in this worksheet. If you do not have any benchmark data,
then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be null
in the graph and show only the company specific ratio trend.
Annual
Period
1996
Annual
Period
1997
Annual
Period
1998
Ref
Description
8-1
7-1
Acid Test Ratio - Industry

Acid Test Ratio - Company
0.51
0.47
0.52
0.40
0.50
0.37
8-2
7-2
Current Ratio - Industry

Current Ratio - Company
1.12
0.90
1.10
0.80
1.05
0.78
8-3
7-21
Receivable Turnover - Industry

Receivable Turnover - Company
8.50
10.87
8.70
12.26
8.40
11.88
8-4
7-22
Days to Collect A/R - Industry

Days to Collect A/R - Company
41
34
39
30
40
31
8-5
7-25
Inventory Turnover - Industry

Inventory Turnover - Company
4.40
4.60
4.45
5.96
4.20
5.47
8-6
7-26
Days in Inventory - Industry

Days in Inventory - Company
86
79
88
61
81
67
8-7
7-27
Asset Turnover - Industry

Asset Turnover - Company
1.60
0.70
1.55
0.78
1.62
0.82
8-8
7-29
Gross Profit Margin - Industry

Gross Profit Margin - Company
55.00%
58.96%
52.00%
57.78%
60.00%
61.11%
8-10
7-31
Net Profit Margin - Industry

Net Profit Margin - Company
20.00%
24.22%
23.00%
29.71%
22.00%
29.44%
8-11
8-12
Return on Total Assets - Industry

Return on Total Assets - Company
38.00%
30.00%
36.00%
25.80%
37.00%
26.51%
8-13
8-14
Return on Equity - Industry

Return on Equity - Company
26.00%
23.93%
22.00%
33.44%
24.00%
35.28%
8-15
7-38
Debt to Equity - Industry

Debt to Equity - Company
35%
50%
38%
63%
31%
63%
8-16
7-39
Times Interest Earned - Industry

Times Interest Earned - Company
40
33
38
50
4-13
8-17
8-18
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
8-19
8-20
Net Sales to Net Worth - Company

Net Sales to Net Worth - Industry
1.18
1.22
1.44
1.20
36
39
1.63
1.19
Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Ha
Graphs appear below for each of the above comparisons:
Ratio
Acid Ratio Comparison

0.60
0.50
Acid Test Ratio Industry
0.40
0.30
Acid Test Ratio Company
0.20
0.10
0.00
1996
1997
1998
1999
Periods
2000
Ratio
Current Ratio Comparison

1.20
1.00
Current Ratio Industry
0.80
0.60
Current Ratio Company
0.40
0.20
0.00
1996
1997
1998
1999
Periods
2000
0.60
0.40
0.20
D a y s to C o lle c t A /R
Turnover Rate
0.00
1996
1997
1998
1999
Periods
2000
Receivable Turnover Comparison

14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
1996
Receivable
Turnover Industry
Receivable
Turnover Company
1997
1998
1999
Periods
2000
Receivable Collection Comparison

50
40
Days to Collect A/R

- Industry
30
Days to Collect A/R

- Company
20
10
Turnover Rate
0
1996
1997
1998
1999
Periods
2000
Inventory Turnover Comparison

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Inventory Turnover Industry

Inventory Turnover Company
Turnove
D ays H eld in Invento ry
Inventory Turnover Comparison

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1996
Inventory Turnover Industry

Inventory Turnover Company
1997
1998
1999
Periods
2000
Inventory Days Comparison

100
80
Days in Inventory Industry
60
Days in Inventory Company
40
20
Turnover Rate
0
1996
1997
1998
1999
Periods
2000
Asset Turnover Comparison

2.00
1.50
Asset Turnover Industry
1.00
Asset Turnover Company
0.50
G ro s s P ro fit M a rg in
0.00
1996
1997
1998
1999
Periods
2000
Gross Profit Margin
G ro s s P ro fit M a rg in
N et P ro fit M arg in
R e tu rn o n Tota l A s s e ts
Gross Profit Margin

70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1996
Gross Profit Margin

- Industry
Gross Profit Margin
- Company
1997
1998
1999
Periods
2000
Net Profit Margin

35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
1996
Net Profit Margin Industry

Net Profit Margin Company
1997
1998
1999
Periods
2000
Return on Total Assets

40.00%
Return on Total
Assets - Industry
30.00%
20.00%
Return on Total
Assets - Company
10.00%
0.00%
Periods
Re
40.00%
Return on Total
Assets - Industry
30.00%
20.00%
Return on Total
Assets - Company
10.00%
R e tu r n o n C o m m o n E q u ity
0.00%
Periods
Return on Equity Comparison

40.00%
Return on Total
Assets - Industry
30.00%
20.00%
Return on Total
Assets - Company
10.00%
0.00%
T im es In terest E arn ed
D e b t to E q u ity R a tio
Periods
Debt to Equity Comparison

70%
60%
50%
40%
30%
20%
10%
0%
1996
Debt to Equity Industry

Debt to Equity Company
1997
1998
Periods
1999
2000

60
50
40
30
20
Times Interest
Earned - Industry
Times Interest
Earned - Company
T im es In terest E ar

60
50
Times Interest
Earned - Industry
40
30
Times Interest
Earned - Company
20
10
0
1996
1997
1998
1999
Periods
2000
Trading Ratio Comparison

Ratio
3.00
2.50
Trading Ratio Industry
2.00
1.50
Trading Ratio Company
1.00
0.50
0.00
1996
1997
1998
1999
Periods
2000
Sales to Worth Comparison

Ratio
3.00
2.50
Net Sales to Net
Worth - Industry
2.00
1.50
Net Sales to Net

Worth - Company
1.00
0.50
0.00
1996
1997
1998
1999
Periods
2000
Worth - Company
1.00
0.50
0.00
1996
1997
1998
1999
Periods
2000
ubject company.
n is used to
nchmark data,
y" line will be null
Annual
Period
1999
Annual
Period
2000
0.49
0.38
0.48
0.40
1.08
0.79
1.07
0.78
8.20
11.37
8.30
10.02
41
32
41
36
4.30
5.10
4.38
5.13
89
72
82
71
1.68
0.77
1.69
0.80
62.00%
63.36%
63.00%
62.96%
19.00%
31.98%
20.00%
28.06%
34.00%
27.33%
36.00%
23.23%
19.00%
33.42%
20.00%
25.89%
34%
57%
32%
53%
39
37
43
35
(2,105)
1.44
1.30
(2,660)
1.49
1.27
1.45
1.22
1.63
1.20
cial Ratios by Leo Troy, Prentice Hall
Acid Test Ratio Industry

Acid Test Ratio Company
Current Ratio Industry

son
Receivable
Turnover Industry
Receivable
Turnover Company
ison
ays to Collect A/R

Industry
ays to Collect A/R

Company
on
ventory Turnover dustry
ventory Turnover ompany
on
ventory Turnover dustry
ventory Turnover ompany
Days in Inventory ndustry
Days in Inventory Company
Asset Turnover Industry

Asset Turnover Company
ross Profit Margin

ndustry
ross Profit Margin

Company
Net Profit Margin Industry
Net Profit Margin Company
Return on Total
Assets - Industry
Return on Total
Assets - Company
Return on Total
Assets - Industry
Return on Total
Assets - Company
on
Return on Total
Assets - Industry
Return on Total
Assets - Company
Debt to Equity Industry

Debt to Equity Company
Times Interest
Earned - Industry
Times Interest
Earned - Company
Times Interest
Earned - Industry
Times Interest
Earned - Company
Trading Ratio Industry

Trading Ratio Company
Net Sales to Net

Worth - Industry
Net Sales to Net

Worth - Company
Worth - Company
Horizontal Analysis for

Horizontal Analysis expresses change between periods as percentages for each account in
the financial statements. The basic formula for horizontal analysis is:
% change = (most recent period - previous period) / previous period
Description
Annual
Period
1996
Annual
Period
1997
Annual
Period
1998
Annual
Period
1999
Annual
Period
2000
Growth in Net Sales
32.50%
38.47%
26.77%
16.67%
10.93%
Cost of Goods Sold
29.00%
42.42%
16.78%
9.92%
12.15%
2.90%
-1.99%
5.76%
3.68%
-0.64%
16.50%
12.90%
4.27%
27.22%
77.05%
103.98%
30.56%
2.68%
7.80%
26.37%
3.80%
22.38%
106.13%
4.33%
24.17%
Growth in Minority Interest
96.00%
1676.47%
-27.48%
38.36%
69.97%
Growth in Net Income
33.50%
69.85%
25.60%
26.78%
-2.65%
Growth in Earnings Per Share
32.60%
73.80%
24.45%
22.73%
-0.96%

Accounts Receivable
Inventory
3.08%
12.00%
26.70%
19.90%
26.70%
21.50%
-4.04%
50.00%
51.96%
35.32%
32.18%
29.01%
-5.16%
-20.00%
18.06%
21.32%
19.13%
14.69%
10.77%
-50.00%
22.95%
15.15%
20.44%
18.06%
-12.83%
83.33%
35.11%
8.42%
-7.27%
10.39%
Net Fixed Assets

17.80%
6.20%
0.00%
16.50%
32.50%
24.98%
-11.11%
-100.00%
10.00%
23.27%
24.02%
-62.50%
#DIV/0!
-4.55%
22.14%
23.69%
391.67%
#DIV/0!
28.57%
27.19%
2.83%
53.39%
64.80%
44.44%
4.84%
1.05%
24.58%
20.38%
25.14%
6.01%
26.20%
33.50%
16.70%
12.80%
38.02%
53.66%
52.50%
25.00%
19.05%
44.83%
4.44%
40.98%
66.67%
18.40%
18.09%
17.63%
20.16%
20.00%
7.43%
16.47%
24.03%
14.52%
20.00%
-18.18%
12.77%
Growth in Gross Profits

Growth in Interest Expense
Growth in Income Tax Expense
Growth in Non Operating Expenses
Growth in Total Assets

Accounts Payable

46.00%
11.30%
37.10%
50.86%
15.38%
38.12%
48.57%
-6.53%
32.04%
38.46%
26.96%
36.02%
9.72%
11.80%
10.13%
Growth in Total Liabilities
31.05%
42.85%
22.08%
22.52%
11.87%
0.00%
2.60%
1.50%
38.00%
-166.00%
2.01%
#DIV/0!
-1.91%
-2.25%
38.32%
-56.36%
3.91%
#DIV/0!
3.19%
5.29%
39.57%
-558.33%
1.37%
#DIV/0!
1.01%
9.05%
52.95%
290.36%
2.70%
#DIV/0!
1.44%
0.04%
32.92%
213.09%
1.97%
6.11%
14.43%
19.21%
27.00%
2.00%
Sustainable Growth Rate #1

Sustainable Growth Rate #2
13.05%
10.88%
20.53%
12.91%
21.36%
13.91%
23.47%
9.94%
18.06%
7.83%
Growth in Market Capitalization
14.50%
24.69%
29.39%
-6.32%
-14.00%
Preferred Equity
Common Equity
Retained Earnings
Treasury Stock
Growth in Total Equity (Net Worth)
Vertical Analysis for

Vertical analysis expresses financial statements as percentages. On the Balance Sheet,
Total Assets is assigned 100% and on the Income Statement, Total Revenues is assigned 100%.
Account Title
Annual
Period
1996
expressed in percentages
Annual
Annual
Annual
Period
Period
Period
1997
1998
1999
Annual
Period
2000

Accounts Receivable
Inventory
Current Assets
5.77%
0.06%
5.95%
5.86%
5.07%
22.72%
4.45%
0.07%
7.26%
6.37%
5.38%
23.53%
3.50%
0.05%
7.12%
6.42%
5.33%
22.41%
3.10%
0.02%
6.99%
5.90%
5.13%
21.14%
2.55%
0.03%
8.91%
6.04%
4.49%
22.02%
Net Fixed Assets

Non Current Assets
74.22%
2.10%
0.38%
0.58%
77.28%
74.46%
1.50%
0.00%
0.51%
76.47%
76.71%
0.47%
0.00%
0.41%
77.59%
75.83%
1.83%
0.78%
0.42%
78.86%
73.55%
2.65%
1.21%
0.57%
77.98%
100.00%
100.00%
100.00%
100.00%
100.00%
Accounts Payable
11.96%
7.00%
0.07%
6.12%
25.15%
14.75%
8.57%
0.07%
5.85%
29.24%
12.79%
10.03%
0.10%
5.76%
28.68%
12.03%
9.63%
0.09%
4.94%
26.69%
14.07%
10.41%
0.11%
3.81%
28.40%

Total NonCurrent Liabilities
6.77%
3.79%
10.56%
8.19%
3.51%
11.70%
10.11%
2.73%
12.84%
11.19%
2.77%
13.95%
11.58%
2.92%
14.50%
Total Liabilities
35.71%
40.94%
41.52%
40.65%
42.89%
Preferred Equity
Common Equity
Retained Earnings
Treasury Stock
Total Equity
0.00%
11.92%
29.24%
29.73%
1.60%
-8.19%
64.29%
0.00%
9.39%
22.94%
33.01%
0.56%
-6.84%
59.06%
0.00%
8.05%
20.06%
38.27%
-2.14%
-5.76%
58.48%
0.00%
6.49%
17.48%
46.77%
-6.67%
-4.72%
59.35%
0.00%
6.21%
16.50%
58.64%
-19.71%
-4.54%
57.11%
100.00%
100.00%
100.00%
100.00%
100.00%
Total Assets
Total Liabilities & Equity
Total Revenues
100.00%
100.00%
100.00%
100.00%
100.00%
Cost of Goods Sold
40.99%
42.17%
38.84%
36.58%
36.98%
Gross Profit
58.96%
57.78%
61.11%
63.36%
62.96%
Operating Expenses
27.42%
23.28%
21.96%
23.01%
26.04%
7.51%
6.64%
10.79%
9.65%
10.80%
Income Before Extra Ord Items
24.08%
27.91%
28.41%
30.76%
26.18%
Net Income
24.22%
29.71%
29.44%
31.98%
28.06%
Non Operating Expenses
Enter Your Forecast Periods =>
Annual
Period
2001
Annual
Period
2002
Annual
Period
2003
Annual
Period
2004
Annual
Period
2005
Pro Forma Income Statement

Gross Revenues
Growth Assumptions
30,742
12.00%
34,431
12.00%
38,562
12.00%
43,190
12.00%
48,373
12.00%
Cost of Goods Sold

Growth Assumptions
(12,024)
39.11%
(13,467)
39.11%
(15,083)
39.11%
(16,893)
39.11%
(18,920)
39.11%
Operating Expenses
Growth Assumptions
(7,483)
24.34%
(8,381)
24.34%
(9,387)
24.34%
(10,513)
24.34%
(11,775)
24.34%
NonOperating Expenses
(3,200)
(3,200)
(3,600)
(3,600)
(4,000)
650
650
650
700
700
8,685
10,033
11,143
12,884
14,378
Sources of Operating Cash Flow:

Net Income
8,685
470
0
15
(789)
1,073
10,033
490
0
9
(996)
1,291
11,143
500
0
2
(1,116)
1,446
12,884
520
0
3
(1,249)
1,620
14,378
550
0
6
(1,399)
1,814
Operating Cash Flow
9,453
10,827
11,975
13,777
15,348
Investment Sources of Cash Flow:

Planned Sale of Assets
Planned Sale of Investments
Other Investment Sources to be used
Total Investment Sources of Cash
100
2,200
0
2,300
60
2,100
0
2,160
20
1,900
0
1,920
25
1,800
0
1,825
35
1,700
0
1,735
Planned Investments:
Acquisitions in Other Co's
Total Investment Applications of Cash
(3,500)
(500)
(3,000)
(7,000)
(3,000)
(750)
(3,500)
(7,250)
(3,100)
(1,200)
(4,500)
(8,800)
(2,700)
(650)
(6,000)
(9,350)
(2,600)
(350)
(7,000)
(9,950)
1,300
20
1,000
60
950
80
750
90
650
100
ExtraOrdinary Items
Net Income
Pro Forma Cash Flow Statement
Cash Flow from Financing Activities:

Proceeds from Loans & Debt

Total Financing Sources of Cash
Annual
Period
2001
Annual
Period
2002
Annual
Period
2003
Annual
Period
2004
Annual
Period
2005
0
1,320
0
1,060
0
1,030
0
840
0
750
(1,500)
(2,500)
(2,000)
0
(6,000)
(1,000)
(3,000)
(2,000)
0
(6,000)
(600)
(4,000)
(1,500)
0
(6,100)
(500)
(5,500)
(1,000)
0
(7,000)
(500)
(7,000)
(500)
0
(8,000)
73
797
25
92
(117)
870
943
943
1,740
1,740
1,765
1,765
1,857
1,857
1,740

Accounts Receivable
Inventory
943
0
3,074
2,459
1,998
8,475
1,740
0
3,443
2,754
2,238
10,175
1,765
0
3,856
3,085
2,507
11,213
1,857
0
4,319
3,455
2,807
12,438
1,740
0
4,837
3,870
3,144
13,591
Fixed Assets
Net Fixed Assets
31,600
(3,480)
28,120
1,705
912
200
30,937
34,600
(3,970)
30,630
3,105
1,662
240
35,637
37,700
(4,470)
33,230
5,705
2,862
320
42,117
40,400
(4,990)
35,410
9,905
3,512
400
49,227
43,000
(5,540)
37,460
15,205
3,862
650
57,177
Total Assets
39,412
45,812
53,330
61,665
70,768
Accounts Payable
5,226
3,689
30
1,845
10,790
5,853
4,132
30
2,066
12,081
6,556
4,627
25
2,314
13,522
7,342
5,183
20
2,591
15,136
8,223
5,805
15
2,902
16,945
3,750
700
4,450
3,750
750
4,500
4,100
800
4,900
4,350
800
5,150
4,500
800
5,300
15,240
16,581
18,422
20,286
22,245
Cash Flow Applied for Financing:

Payments on Loans & Debt
Purchase / Retire Stock
Total Financing Applications of Cash
Total Change to Cash
Forecasted Ending Balance
Pro Forma Balance Sheet

Total Liabilities
Annual
Period
2001
Annual
Period
2002
Annual
Period
2003
Annual
Period
2004
Annual
Period
2005
Preferred Equity
Common Equity
Retained Earnings
Treasury Stock
Total Equity
0
2,200
5,700
26,190
(5,000)
(3,550)
25,540
0
2,200
5,700
33,222
(4,000)
(5,550)
31,572
0
2,200
5,700
40,365
(2,500)
(7,050)
38,715
0
2,200
5,700
47,748
(1,500)
(8,050)
46,098
0
2,200
5,700
55,126
(500)
(8,550)
53,976
External Financing Required (EFR)
(1,368)
(2,341)
(3,807)
(4,720)
(5,453)
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ProForma Financials (Linear Trend Model)

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
linear regression is used to predict future values. If you have important assumptions
that are important to the forecast, then these assumptions should over-ride the
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 .
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 R e v e nue s
Home
Total Revenues
30,000
20,000
Total Revenues
10,000
0
1994
1996
1998 2000
Periods
2002
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
Annual
Period
Annual
Period
Annual
Period
0.9888
Annual
Period
2001
2002
2003
2004

12-1
Gross Revenues
32,064
35,940
39,816
43,692
12-2
Cost of Goods Sold
(11,607)
(12,847)
(14,087)
(15,327)
12-3
Operating Expenses
(7,750)
(8,693)
(9,636)
(10,579)
12-4
Operating Income
12,707
14,400
16,093
17,786
12-5
(3,549)
(4,088)
(4,627)
(5,166)
4-25
Extra Ordinary Items
271
271
271
271
9,429
10,584
11,738
12,892

Net Income
9,429
470
0
15
(1,146)
1,535
10,584
490
0
9
(1,047)
1,357
11,738
500
0
2
(1,047)
1,357
12,892
520
0
3
(1,047)
1,357
Operating Cash Flow
10,304
11,393
12,550
13,725

100
2,200
0
2,300
60
2,100
0
2,160
20
1,900
0
1,920
25
1,800
0
1,825
Acquisitions
(3,500)
(500)
(3,000)
(7,000)
(3,000)
(750)
(3,500)
(7,250)
(3,100)
(1,200)
(4,500)
(8,800)
(2,700)
(650)
(6,000)
(9,350)
1,300
20
0
1,320
1,000
60
0
1,060
950
80
0
1,030
750
90
0
840
Net Income


(1,500)
(2,500)
(2,000)
0
(6,000)
(1,000)
(3,000)
(2,000)
0
(6,000)
(600)
(4,000)
(1,500)
0
(6,100)
(500)
(5,500)
(1,000)
0
(7,000)
924
1,363
600
40
870
1,794
1,794
3,156
3,156
3,756
3,756
3,796

Accounts Receivable
Inventory
1,794
0
3,206
2,565
2,084
9,649
3,156
0
3,594
2,875
2,336
11,962
3,756
0
3,982
3,185
2,588
13,511
3,796
0
4,369
3,495
2,840
14,501
Fixed Assets
Net Fixed Assets
31,600
(3,480)
28,120
1,705
912
200
30,937
34,600
(3,970)
30,630
3,105
1,662
240
35,637
37,700
(4,470)
33,230
5,705
2,862
320
42,117
40,400
(4,990)
35,410
9,905
3,512
400
49,227
Total Assets
40,586
47,599
55,628
63,728
Accounts Payable
5,451
3,848
30
1,924
11,252
6,110
4,313
30
2,156
12,609
6,769
4,778
25
2,389
13,961
7,428
5,243
20
2,622
15,312
3,750
700
4,450
3,750
750
4,500
4,100
800
4,900
4,350
800
5,150
Total Liabilities
15,702
17,109
18,861
20,462
Preferred Equity
Common Equity
Retained Earnings
Treasury Stock
Total Equity
0
2,200
5,700
26,934
(5,000)
(3,550)
26,284
0
2,200
5,700
34,518
(4,000)
(5,550)
32,868
0
2,200
5,700
42,256
(2,500)
(7,050)
40,606
0
2,200
5,700
49,648
(1,500)
(8,050)
47,998


(1,401)
(2,379)
(3,838)
(4,732)
of the actual data
d the y intercept:
Slope
m factor
3876.20
Annual
Period
Intercept
b factor
8806.60
2005
47,569
(16,567)
(11,522)
19,480
(5,705)
271
14,046
14,046
550
0
6
(1,047)
1,357
14,912
35
1,700
0
1,735
(2,600)
(350)
(7,000)
(9,950)
650
100
0
750
(500)
(7,000)
(500)
0
(8,000)
(553)
3,796
3,243
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)
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ProForma Financials (Exponential Smoothing / Weighted Moving Average)

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
exponential smoothing is used to plot a trend over historical data. Additionally, we
can use a weighted moving average to forecast future periods.
Key Point => If you have a general upward historical trend, weighted average will tend
to underestimate forecasted values and vice versa (downward trend = overestimate).
Exponential Smoothing and Weighted Moving Averages for Total Revenues:

Years =>
1996
1997
Total Revenues - Historical
12,076
16,719
Total Revenues - Exponential
12,076
12,076
Total Revenues - Wt Moving Avg
11,105
15,230
Smoothing Factor must be between 0 and 1
Set Smoothing Factor
Assign weights to appropriate periods
0
1.00
0.00%
1
1.50%
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
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
Total Revenues
Home
Exponential Comparison
30,000
25,000
20,000
Total Revenues Historical
15,000
Total Revenues Exponential

Total Revenues -
Total Reven
Exponential Comparison
30,000
25,000
20,000
15,000
10,000
Total Revenues Wt Moving Avg
5,000
0
2001
2002
2003
2004
Periods
2005
Annual
Period
2001
Annual
Period
2002

Gross Revenues
26,070
26,413
Cost of Goods Sold
(10,197)
(10,207)
Operating Expenses
(6,346)
(6,226)
9,527
9,979
(3,200)
(3,200)
650
650
6,977
7,429

Net Income
6,977
470
0
15
472
(562)
7,429
490
0
9
(92)
120
Operating Cash Flow
7,372
7,956

100
2,200
60
2,100
Operating Income
ExtraOrdinary Items
Net Income

0
2,300
0
2,160
Acquisitions
(3,500)
(500)
(2,000)
(6,000)
(3,000)
(750)
(3,000)
(6,750)

1,300
20
0
1,320
2,000
60
0
2,060

(1,500)
(2,500)
0
0
(4,000)
(1,800)
(3,000)
0
0
(4,800)
992
626
870
1,862
1,862
2,488

Accounts Receivable
Inventory
1,862
0
2,607
2,086
1,695
8,249
2,488
0
2,641
2,113
1,717
8,959
Fixed Assets
Net Fixed Assets
31,600
(3,480)
28,120
705
912
75
29,812
34,600
(3,970)
30,630
1,605
1,662
100
33,997
Total Assets
38,061
42,956
4,432
3,128
30
4,490
3,170
30

Accounts Payable

1,564
9,155
1,585
9,274

3,750
700
4,450
3,950
750
4,700
Total Liabilities
13,605
13,974
Preferred Equity
Common Equity
Retained Earnings
Treasury Stock
Total Equity
0
2,200
5,700
17,505
(5,000)
(1,550)
18,855
0
2,200
5,700
14,505
(3,500)
(1,550)
17,355
5,602
11,627
ighted Moving Average)
d using the results of

ethod known as
. Additionally, we
hted average will tend

end = overestimate).
Total Revenues:
1998
21,196
16,719
18,890
1999
24,737
21,196
21,605
2000
27,448
24,737
22,965
Total weights should add up to =>

4.50%
Difference
0
4,643
4,477
3,541
2,711
Difference
971
1,489
2,306
3,132
4,483
son

Total Revenues -
34.50%
Square
0
21,557,449
20,043,529
12,538,681
7,349,521
12,297,836
Square
942,841
2,217,121
5,317,636
9,809,424
20,100,607
7,677,526
59.50%
2001
26,070
100.00%
100.00%
2002
2003
26,413
26,316
2004
26,355
2005
26,340
son

Total Revenues Wt Moving Avg
Annual
Period
2003
Annual
Period
2004
Annual
Period
2005
26,316
26,355
26,340
(9,860)
(9,694)
(9,740)
(6,229)
(6,464)
(6,859)
10,227
10,197
9,740
(3,600)
(3,600)
(4,000)
650
700
700
7,277
7,297
6,440
7,277
500
0
2
26
(34)
7,297
520
0
3
(11)
14
6,440
550
0
6
4
(5)
7,771
7,824
6,995
20
1,900
25
1,800
35
1,700
0
1,920
0
1,825
0
1,735
(3,100)
(500)
(3,000)
(6,600)
(3,900)
0
(1,000)
(4,900)
(4,600)
0
(1,000)
(5,600)
3,000
80
0
3,080
4,500
90
0
4,590
7,000
100
0
7,100
(2,500)
(4,000)
0
0
(6,500)
(4,000)
(4,000)
0
0
(8,000)
(6,000)
(3,000)
0
0
(9,000)
(329)
1,339
1,230
2,488
2,159
2,159
3,497
3,497
4,728
2,159
0
2,632
2,105
1,711
8,606
3,497
0
2,636
2,108
1,713
9,955
4,728
0
2,634
2,107
1,712
11,181
37,700
(4,470)
33,230
2,705
2,162
150
38,247
41,600
(4,990)
36,610
1,905
2,162
150
40,827
46,200
(5,540)
40,660
1,205
2,162
100
44,127
46,853
50,782
55,308
4,474
3,158
25
4,480
3,163
20
4,478
3,161
15
1,579
9,236
1,581
9,244
1,580
9,234
4,450
800
5,250
4,950
800
5,750
5,950
800
6,750
14,486
14,994
15,984
0
2,200
5,700
10,505
(1,000)
(1,550)
15,855
0
2,200
5,700
6,505
0
(1,550)
12,855
0
2,200
5,700
3,505
0
(1,550)
9,855
16,513
22,932
29,469
Home
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Scenario Analysis for

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
scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding
formula in another cell.
Annual
Period
2001
Annual
Period
2002
Annual
Period
2003
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
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
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
This is the target cell that Goal Seek i

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
Annual
Period
2004
Annual
Period
2005
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
scenario analysis directly in
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

o change per the value 13,500 in cell G34
Worst Case
-5752.08691
-3964.02317
-1096.6
24.6
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Budget Analysis for

Once we complete our forecast, we can summarize and review it before finalizing it
into the form of budgets. We also need to summarize our assumptions that should
go into our final budget. We can start our budget process by reviewing the different
revenue forecast:
Annual
Period
2001
Summarize Revenue Forecast:
Simple Projection Model
Linear Trend Model
Wt Moving Avg Model
Declining Growth Model
Historical Data
Annual
Period
2002
Annual
Period
2003
30,742
32,064
26,070
29,644
12,076
34,431
35,940
26,413
31,422
16,719
38,562
39,816
26,316
32,679
21,196
29,644
31,422
32,679
Projection using declining growth rates:

Gross Revenues
Total Revenues
Home
Forecast Comparisons
60,000
50,000
Simple Projection
Model
40,000
30,000
Linear Trend
Model
20,000
Wt Moving Avg
Model
10,000
Declining Growth
Model
0
2001
Historical Data
2002
2003 2004
Periods
2005
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.
Polynomial - Used when rate of change fluctuates with no pattern.
Logarithmic Trend
Formula for Logarithmic Trendline
x factor
1
2
3
4
5
6
7
8
9
10
y = ( c * LN (x)) - b
LN: Natural Logarithm
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
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
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
Predicted
Value y
11,997
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
Polynomial Trendline
y = (c2 * x^2) + (c1 * x^1) + b
x factor
1
2
3
4
5
6
7
8
9
10
16,719
21,196
24,737
27,448
16,902
21,121
24,654
27,502
29,664
31,140
31,930
32,035
31,454
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
Summarize Non Linear Curves on Graph:
Total Revenues
Logarithmic Trendline
Power Trendline
Exponential Trendline
Polynomial Trendline
Actual Revenues
Non Linear Trends

100,000
80,000
Logarithmic
Trendline
60,000
Power Tren
40,000
Exponentia
Trendline
20,000
Polynomial
Trendline
Actual Reve
(20,000)
Periods
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
1997
1998
Income Statement Items

Total Revenues - Budgeted
Total Revenues - Actual
% difference from actual
10,500
12,076
-13%
14,500
16,719
-13%
22,500
21,196
6%
Cost of Goods Sold - Budgeted

Cost of Goods Sold - Actual
(4,500)
(4,950)
-9%
(6,500)
(7,050)
-8%
(8,648)
(8,233)
5%
Operating Income - Budgeted

Operating Income - Actual
3,100
3,815
-19%
4,900
5,776
-15%
9,000
8,309
8%
Net Income - Budgeted

Net Income - Actual
2,100
2,925
-28%
4,100
4,968
-17%
6,500
6,240
4%
Balance Sheet Items

Current Assets - Budgeted
Current Assets - Actual
3,450
3,895
-11%
4,400
5,025
-12%
6,250
5,763
8%
10,900
13,251
-18%
14,000
16,335
-14%
22,000
19,951
10%
Current Liabilities - Budgeted

Current Liabilities - Actual
3,750
4,312
-13%
5,600
6,245
-10%
8,200
7,375
11%
NonCurrent Liabilities - Budgeted

NonCurrent Liabilities - Actual
1,750
1,810
-3%
2,450
2,500
-2%
3,750
3,301
14%
Ratio Items
Current Ratio - Budgeted
Current Ratio - Actual
0.92
0.90
2%
0.79
0.80
-2%
0.76
0.78
-2%
Total Asset Turnover - Budgeted

Total Asset Turnover - Actual
0.68
0.70
-3%
0.72
0.78
-8%
0.80
0.82
-3%
NonCurrent Assets - Budgeted

NonCurrent Assets - Actual
Gross Profit Margin - Budgeted

Gross Profit Margin - Actual
60%
59%
2%
60%
58%
4%
60%
61%
-2%
Net Profit Margin - Budgeted

Net Profit Margin - Actual
19%
24%
-22%
25%
30%
-16%
28%
29%
-5%
Debt to Common Equity - Budgeted

Debt to Common Equity - Actual
0.45
0.50
-11%
0.50
0.63
-20%
0.60
0.63
-4%
Return on Equity - Budgeted

Return on Equity - Actual
20%
24%
-16%
29%
33%
-13%
32%
35%
-9%
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
before finalizing it
ions that should
wing the different
Annual
Period
2004
Annual
Period
2005
43,190
43,692
26,355
33,170
24,737
48,373
47,569
26,340
31,000
27,448
33,170
31,000
Simple Projection
Model
Linear Trend
Model
Wt Moving Avg
Model
Declining Growth
Model
Historical Data
veral non-linear (curve) models:

ward or downward.
ng at ever higher rates.
Slope
Intercept
c factor
b factor
9600.91841 11242.3365
Slope
Intercept
c factor
b factor
0.51758981 9.38859823
11951.3346
< - calculate using c and b factor - >

Slope
Intercept
Predicted
c factor
b factor
( c * x)
EXP
Value y
0.20339009 9.27401935
0.20339 1.2255504
13,061
10657.5022
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
1999
2,067
24,493
24,043
24,654
24,737
2000
4,210
27,491
29,465
27,502
27,448
2001
5,960
30,212
36,111
29,664
rends
Logarithmic
Trendline
Power Trendline
Exponential
Trendline
Polynomial
Trendline
Actual Revenues
2002
7,440
32,721
44,256
31,140
2003
8,722
35,063
54,238
31,930
2004
9,853
37,267
66,472
32,035
2005
10,865
39,356
81,464
31,454
the degree of error or

es a need to improve
1999
2000
(Wksht 16)
2001
28,500
24,737
15%
30,000
27,448
9%
30,500
TBD
#VALUE!
(9,650)
(9,050)
7%
(11,000)
(10,150)
8%
(11,929)
TBD
#VALUE!
11,000
9,995
10%
10,500
10,150
3%
11,146
TBD
#VALUE!
9,000
7,911
14%
9,300
7,701
21%
7,986
TBD
#VALUE!
7,500
6,804
10%
7,900
7,511
5%
8,253
TBD
#VALUE!
27,500
25,375
8%
29,500
26,602
11%
31,555
TBD
#VALUE!
9,050
8,590
5%
9,400
9,687
-3%
10,715
TBD
#VALUE!
4,900
4,490
9%
5,100
4,945
3%
5,250
TBD
#VALUE!
0.83
0.79
5%
0.80
0.78
3%
0.77
TBD
#VALUE!
0.80
0.77
4%
0.79
0.80
-2%
0.77
TBD
#VALUE!
60%
63%
-5%
60%
63%
-5%
0.61
TBD
#VALUE!
30%
32%
-6%
28%
28%
0%
26%
TBD
#VALUE!
0.65
0.57
13%
0.55
0.53
4%
0.48
TBD
#VALUE!
35%
33%
5%
30%
26%
16%
24%
TBD
#VALUE!
Absolute
1,576
2,219
1,304
3,763
2,552
3,824
Error
Squared
2,483,776
4,923,961
1,700,416
14,160,169
6,512,704
14,622,976
ot place weight on the

icted values) / n.
ce more emphasis on
alculated as the
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)
Mean Absolute Error

Mean Square Error
Root Mean Sqr Error
Establish Error Limits
765
2,924,595
1,710
1,710
Is Error
Outside
Limit?
No
Yes
No
Yes
Yes
Yes
Home
Wksh2
Wksh3
Wksh4
Wksh5
Wksh6
Wksh7
Wksh8
Wksh9
Wksh10
Wksh11
Wksh12
Wksh13
Wksh14
Wksh15
active
Final Budgets for

Now that we have analyzed our historical data and placed it into a set of
forecast, we can pull it all together with our assumptions for a final budget.
Many of these assumptions should be included in our forecast for improved
accuracy. However, we need to fine tune and finalize all assumptions
so that we can produce a final finished budget for planning purposes.
Budget
Period
2001
Ref
Operating Plan
16-1
16-2
16-3
16-4
Total Revenues
Cost of Goods Sold
Operating Expenses
Operating Income
30,500
(11,929)
(7,424)
11,146
16-5
16-6
16-7
Interest Expenses
Income Taxes
Other Non Operating Expenses
(310)
(3,300)
(200)
16-8
16-9
Earnings Before Extra Ord Items

7,336
650
16-10
Net Income
7,986
Financial Plan
Budgeted Cash Flows
16-11
16-12
16-13
16-14
16-15
16-16
Net Income
(Increase) Decrease Current Liab
7,986
470
0
15
(724)
988
16-17
Operating Cash Flow
8,735
16-18
16-19
16-20
16-21
Investment Sources of Cash:

100
2,200
0
2,300
16-22
(4,500)
16-23
16-24
16-25
Acquisitions in Other Co's

(350)
(2,500)
(7,350)
16-26
16-27
16-28
16-29
Cash Flow from Financing Activities

1,450
15
0
1,465
16-30
16-31
16-32
16-33
16-34

Payments on Loans and Debt
(1,250)
(2,500)
(1,500)
0
(5,250)
16-35
16-36
16-37

(100)
870
770
Budgeted Balance Sheet

16-38
16-39
16-40
16-41
16-42
16-43

Accounts Receivable
Inventory
770
10
3,050
2,440
1,983
8,253
16-44
16-45
16-46
16-47
16-48
16-49
16-50
Fixed Assets
Net Fixed Assets
32,600
(3,480)
29,120
1,205
1,000
230
31,555
16-51
Total Assets
39,808
16-52
16-53
16-54
16-55
16-56
Accounts Payable
5,185
3,660
40
1,830
10,715
16-57
16-58
16-59

4,150
1,100
5,250
16-60
Total Liabilities
15,965
16-61
16-62
16-63
16-64
16-65
16-66
16-67
Preferred Stock
Common Equity
Retained Earnings
Adj for Foreign Currency Translation
Treasury Stock
Total Equity
0
2,200
5,700
25,491
(5,000)
(3,050)
25,341
16-68
Total Liabilities and Equity
41,306
16-69
External Financing Required
(1,499)
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.
Assumptions & Comments
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
Per our Simple Model Forecast
Review of Simple Model Forecast and Capital Expenditure Budget

Per Simple Forecast Model
Same formula as used in forecast models
Per Simple Model Forecast

Budgeted $ 4.5 million in Capital Expenditure Budget
Per forecast, strategic plan, and other budgets

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 strategic plan and other budgets
Per above
Per historical financials

Per review of forecast and strategic plans
Per review of forecast and historical balances

Per review of forecast and historical information

Per review of historical information and expected growth rates.

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
Original Value
20,525,549
Final Value
12,297,836
Adjustable Cells
Cell
Name
$D$24 Set Smoothing Factor
Original Value
0.70
Final Value
1.00
Constraints
Cell
Name
$D$23 Smoothing Factor must be between 0 and 1
$D$24 Set Smoothing Factor
Cell Value
Formula
Status Slack
0 $D$23>=$D$23 Binding
0
1.00 $D$24<=$E$23 Binding
0
Microsoft Excel 9.0 Answer Report

Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp)
Report Created: 3/16/2002 5:19:05 PM
Target Cell (Min)

Cell
$G$46 Mean Squared Error Square
Name
Original Value
65,536,151
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
Original Value
0.00%
2.00%
5.00%
35.00%
60.00%
Constraints
Cell
Name
$I$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%
Final Value
59,853,342
Final Value
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%

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Financial Analysis & Forecasting

Prepared by Matt H. Evans, CPA, CMA, CFM

To illustrate concepts related to financial analysis and forecasting.

Pro Forma - Simple

Set of pro forma financials using simple assumptions

Pro Forma - Regression

Set of pro forma financials using linear trending

CPA, CMA, CFM

n for further analysis.

ding trend lines.

tions and forecasts.

General Input Panel

The following general information should be entered:

Name of Company => X Y Z Corporation USA

Reporting Periods =>

(Annual, Semi-annual, Quarterly or Monthly)

Number of Days in Reporting Period are

What reporting periods will be entered?

Most Current Period

(1999, July 1998, 6/30/97, etc.)

Number of historical periods to be analyzed

How are the amounts expressed in the financial statements?

Balance Sheet for

Cash and Cash Equivalents

Longterm Debt / Borrowings

Prepared by Matt H. Evans 07/13/2015

Balance Sheet for

Total Liabilities & Equity

Check: Assets = Liab + Equity ?

NonDepreciable Fixed Assets

Prepared by Matt H. Evans 07/13/2015

Balance Sheet for

Prepared by Matt H. Evans 07/13/2015

Income Statement for

Extra Ordinary Items (Loss) Gain

Prepared by Matt H. Evans 07/13/2015

Income Statement for

Prepared by Matt H. Evans 07/13/2015

Cash Flow Statement for

Proceeds from Borrowings

Increase (Decrease) to Cash

Prepared by Matt H. Evans 07/13/2015

Cash Flow Statement for

Prepared by Matt H. Evans 07/13/2015

Key Financial Data for

Key Financial Data for

$315,000 <= estimated selling price

Ratio Analysis for

Acid Test Ratio

Operating Cash Flow to Net Income

Ratio Analysis for

Operating Assets Ratio

Gross Profit Margin

Net Profit Margin

Direct Cost to Operating Revenues

Return on Shareholder Equity

Debt to Total Assets

Debt to Common Equity

Capitalization Rate / Asset Return:

Times Interest Earned

Price to Earnings (P/E)

Benchmark Analysis for

Acid Test Ratio - Industry