Forecasting Financial Statements - Part 1.mp4

This is the first video on "Forecasting", where we start to think about how we go from what we know about a company via its financial statements to what we think the company will do in the future (financially, that is). Please leave a comment or a question!

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Closed Caption:

hello everyone
ok forecasting so we're going to take
the financial statements that we've had
from what we call it which is now
changed his name to ninja throwing stars
company they focus on creating ninja
throwing stars that all of us financial
changes can appreciate so here what
we're going to do is we're going to do
some basic forecast this will probably
be a series of videos but but but I
guess there's two things we're saying
here one we're going to keep this really
simple right let's put that the top keep
this really simple
ok and 2 is $OPERAND and 2 is that you
know this is a model we will make
assumptions and play a guessing game
right now it's important to note it's
also important to keep and a font that
you can see it it is important because
this isn't exactly science right this is
a bit of art and science on and how we
actually do this
alright so the science part is where we
going to we say well what do we know
about previous years how do we how do we
estimate what the growth is going to be
what will be appropriate measures that
we can we can look at 44 for estimating
how much cash will need what the
accounts receivables will be inventories
on hand
what will be our cost to get sold can we
decrease it on to a certain point you
know we can look at that pretty
scientifically with a lot of these
ratios that we did and the first videos
right down way back here when we were
still fake company and before we came in
just and in that time period we did
those 31 ratios that now are going to
come in really handy when we start going
through and and looking at what we're
going to forecast so before we get into
actual forecasting i'm just going to
show this really quick write that here
is what we are is what we're doing so
will make some assumptions
well actually first let's rewind so so
you'll see that we have 2003-2007 ok now
these are actual right let's write that
in their actual actual alright so these
are actual statements and then what
we're going to have over here are
forecast forecasts and you can call
performance you can call it forecast it
really doesn't matter the point is that
you know that this is not actual and
what that means is if actual we actually
recorded that forecast means that we're
looking at into the future and we're
just making assumptions right we're so
in this we're going to keep it simple
and really simple so simple that we're
not even spell words right and we're
going to play a bit of a guessing game
alright so we will start off them say
you know some high-level things like how
much are we going to grow in sales right
so here I make an assumption right make
this is kind of me writing my notes on
the side you can do this on a separate
sheet you can do this on the bottom down
here you can do it over to the side like
i did i just did it right here because
it's easier for you see so we have our
assumptions and then we put our inputs
right to grow five percent and our i put
the five percent over to the side like
this because i'm going to use it right
and inside these cells here now I'm
going to come back in another video and
will actually go through a few steps in
a process to to populate this but i just
want to uh to talk a little bit about on
the you know what we're going to be
doing here
right so what we're going to do it is
first right we're going to go through
and identify what is going to vary with
sales right so with the the first thing
we're going to change is going to be
sales is the top line direction of where
the company is going well we sell more
or less ninja throwing stars and then
what we'll do is once we've identified
that top line what's going to grow
we're going to go through and identify
well what other accounts and this and
this you know financial statement is
performer what is going to change with
our without with ourselves right so we
know that comes to get sold
obviously change with sales because it's
the cost of the inventory that we're
selling right is this how much we paid
to get their appreciation we know
probably will not vary as much of the
sales will that will depend on assets
like a road over here in the margins on
SG&A the best sales on general
administration expenses that is
something that could vary with sales but
not as much as they cost of goods sold
well on you no interest expense that
won't that is a function of debt right
over here is interest on debt so if we
take on more debt
maybe because we are increasing our
assets then we would see that rise or
fall but otherwise it'll just be a
function of how much that we have in the
books on your income taxes of course
that will but that's just because we're
going to multiply whatever we make x 35%
then obviously net income will but again
those are just you know these are
calculated functions are automatic right
so you know everything i'm highlighting
right now you know this is this is going
to just be calculated the same as always
right so gross profit is always going to
be our our sales minus our cost of goods
sold and appreciation right our
operating profit is going to always be
our gross profit minus our SG&A our
interest expense is going to be
calculated as a percentage of debt our
profit before tax earnings before tax
weekend we should call that is going to
be nothing more than our re bit- our
interests and our net income will be our
earnings before taxes minus our taxes
right so so we can we can already you
know get a big chunk of our work done
for us you know just like that right and
and this will automatically populate the
future so I'm just going to change this
one thing really quick exchange us to
earnings before tax policy VT and then
we'll come back in another video and
look at going through each of these and
and talk about the assumptions we made
and start filling out the sheet
ok i'll use it by