The analysis and evaluation of the financial results of the company, based on financial statements, is an extremely important procedure, however, planning and forecasting further profit is equally important in this case. All the data that are ultimately obtained from such an analysis, as well as conclusions based on these data, are accepted in the process of forecasting profits to the extent that any estimate is based on past and present experience.
Thus, the current financial statements allow us to understand trends, identify any bottlenecks, as well as determine the appropriate resources and reserves that can be used to further optimize the company's profits. It is for this reason that it is important to be able to correctly report on profit and loss. You can see an example of such a document below and, based on it, already draw up your documents.
Basic concepts
Financial planning is based on forecasting and understanding the future future of the company, as well as understanding what the company aims at in the current as well as long-term perspective. The company's management must correctly understand what financial transactions should be used in order to obtain results of interest to them. In the overwhelming majority of cases, conducting such an assessment of the company's future activities is expressed in a business plan, one of the elements of which is forecasting further cash flows, as well as a profit and loss statement. An example includes management plans, as well as the financial condition of the enterprise in numerical terms.
Based on the forecasting of future cash inflows, it is possible to draw up a preliminary profit and loss statement, an example of which uses the forecast drawn up on it, since it allows you to determine significant financial transactions in the future. However, proper forecasting of the report requires obtaining the maximum possible amount of detailed information, because you should not forget that the total amount of profit directly depends on a number of elements, and should be based on a detailed analysis of all important components. The main components are the total amount of costs and revenues, but do not forget that changes in one element can ultimately significantly affect net profit.
How is forecasting done?
Profit forecasting is carried out taking into account all the prevailing financial conditions of the company, as well as its current financial condition. As mentioned above, when a profit and loss statement is prepared, the example should include any details, including:
- the amount and price of borrowed funds used in the process of financing the work of the company;
- how effectively and fully utilized the assets of the enterprise;
- from what sources the company intends to receive financing for its core business in the near future;
- is there a need to build up their assets;
- what is the dynamics of net working capital;
- and much more.
Management must understand how risky the capital structure used by the company is, and whether it creates restrictions on freedom of action from the position of encumbrance with too high interest. Also, do not forget about whether such a financial structure affects the independent active position of management, and whether it can ultimately lead to insufficient solvency in the forecast period. Among other things, when the profit and loss statement is being analyzed, an example of it should include the study of external conditions that affect the financial performance of the company.
Prediction by external users
Predict the financial statements of the company can also external users, from the position of which the forecast can be built on an alternative scenario. Thus, the analysis of the profit and loss statement, an example of which will be compiled by such specialists, can also show other environmental influences, as well as the growth rate of sales volumes, which are different from those that were laid down in the initial forecast. All this is due to the fact that external users can use several other logical models in the process of making their forecasts, and also have access to a number of specialized information data related both to the work of this enterprise and to the work of its contractors.
Prediction of sales volumes
Prediction of sales volumes is a key point in the process of how the profit and loss statement of the store (example) or any other company is compiled. In order to conduct a preliminary assessment, the forecast can be carried out in the form of a percentage increase to this indicator for the previous year. Sales volumes can be planned and predicted based on more accurate and detailed calculations.
Such forecasting begins with an extremely detailed analysis of the trends that have been formed over the long years of the company’s work, as well as the causes of various changes. The next step in forecasting is to determine the possible prospects for the subsequent development of the business activity of the company, which are evaluated from the position of the already created portfolio of orders, as well as the structure of products used and changes in it. In addition, the market, competitiveness and financial capabilities of the enterprise are also taken into account. Based on this, forecasting of sales volumes is already being carried out, and the accuracy of this procedure plays an extremely important role in how correctly the example of solving the profit and loss statement will be created. The presence of an unrealistic estimate of the volume of sales may ultimately cause the depreciation of all other forecast reports, since the various individual elements that make up the profit directly depend on the volume of sales of the enterprise.
Another important indicator from which the company's profit is formed is the cost of its products or services. In the process of such forecasting, it is also possible to carry out the calculation in the form of parts in the estimated sales volume, taking into account the expected or generated profitability. In this case, the profit and loss statement of LLC, an example of which will be considered later, uses a calculation that depends on the price factor. At the same time, one should not forget that the prime cost and price may have different tendencies that do not coincide with each other; as a result, it is preferable to use more accurate methods of measuring it in the forecast cost estimate.
Among other things, the profit and loss statement of an individual entrepreneur (example) and other types of business can be built using a system of flexible on-farm budgets. In this case, it is planned to use the budgets of the sales volume in value and in kind, and also use the budgets of overhead and commercial expenses, production costs and many others formed by responsibility centers. Already on their basis, a budget is being developed for income and expenses, and it will also be possible to draw up a profit and loss statement, an example of which will be indicated below. It is for this reason that it is important to understand how various forecasting methods are used and how to apply them in combination.
Reporting purpose
Recently, the IFRS profit and loss statement, an example of which allows you to obtain loans from foreign banks, has been used more and more widely used in the process of concluding contracts with leasing companies, as well as for a number of other financial works. Despite the fact that forward-looking statements in itself is a rather conventional concept, it reflects the company's intentions in terms of further business, that is, it clearly shows the business plan drawn up by the management. It is for this reason, taking the profit and loss statement of the simplified tax system as the basis (example below), we can talk about how various actual deviations from the plan drawn up at this stage of development can affect the company's financial performance in the future.
Ensuring competent forward-looking statements is an extremely important element of financial analysis. The theory of the study of economic activity, which is based on the use of ratios, is quite widely known today, but the traditional approaches to conducting financial analysis of financial statements in Russia, when a standard set of ratios is used, in the vast majority of cases do not provide a complete picture of the state Affairs, as the analysis is carried out not the consolidated financial statements, as well as assets often reflect actual costs incurred com AANII. It is for this reason that the so-called international reporting is used, which represents a much wider field from the point of view of analysis, but at the same time necessitates the use of specific analysis tools.
Features
Basically, forward-looking statements are compiled based on the current budget system or business plan. In this case, the starting point in this case is the actual reporting at the most recent reporting date. Small enterprises generally prefer to draw up only a cash flow budget, however, even based on it, you can ultimately draw up detailed forward-looking statements.
If the company uses a sufficiently developed budget system, the forecast balance is most likely already at the moment one of the components of this system, since balances of finances for a specific date, as well as stock balances or receivables, can be planned. In this case, the methodology in accordance with which the profit and loss statement will be compiled (example below) is transferred directly to the sphere of responsibility of specialists in the field of budgeting. Thus, the volume of activity is distributed in the process of compiling the report.
What approaches can be used
In the overwhelming majority of cases, those programs through which budgeting is carried out are also used to generate a profit and loss statement of the enterprise (for example, Excel). However, it is worth considering several principles for the preparation of forward-looking statements, based on a cash flow budget, which includes flows for:
- investment activity;
- operating activities;
- financial activities.
How each thread is used
This is an example of filling out a profit and loss statement:
It should be based on operating activity flows. So specialists can make a profit and loss forecast report (example above). Flows from investment activities make it possible to generate an extremely accurate forecast of possible changes in non-current assets in the balance sheet, while flows from financial activities provide the ability to create a forecast of changes in items for any financial investments, as well as loans and credits in the forecast balance sheet.
In order to draw up a forecast balance, you need to get information about the forecast of further tax payments, as well as tax refunds, including VAT, property taxes, profits and many others, which includes an example of filling out a profit and loss statement. In order to calculate the profit tax, the forecast profit margin must be used, and therefore, in order to draw up the forecast balance, it is necessary to have a forecast profit and loss statement.
The approaches used to compile the forecast balance sheet are individual for each individual company, and the forecast balance sheet model includes planning models for its various articles. Further we will consider examples of forecasting some of the most important articles.
Account receivable forecast
In the process of forecasting receivables, this value is used as the basis in accordance with the latest reporting. In order to ensure the correct forecasting, a professional technical analysis of receivables in previous reporting periods is used, and a cash flow budget is applied, depending on the specifics of the company. If forecasting reports are compiled through Excel, then in this case it will be most optimal to use a model for summing up indicators by a certain attribute, after which it will be possible to enter various forecast indicators into this model with postings based on double entry.
The forecasting index is a product of the average seasonality index and the growth index for each individual quarter. Prediction of sales is carried out by multiplying the actual sales conducted during the base quarter of the reporting year by the established forecasting index.
In order to predict revenue growth rates, a model should be used that takes into account several factors, the main ones being the following:
- natural market growth;
- the effect of increased sales due to the advertising used;
- use of a reserve of production capacities;
- influence from competing companies that may push the product out of the market;
- market price dynamics.
Each such factor needs to be forecasted separately, and for it it is necessary to create its own model. Such information is taken in the relevant structural divisions of companies, as well as from external sources. Among other things, you can order professional research from specialized research companies that are engaged not only in holistic forecasting of the market, but also in forecasting the share of each company in this market and calculating a number of other indicators.
Cost Forecast
The forecast for the increase in the value of fixed assets is determined in accordance with the investment plan from the drawn up cash flow budget. Depreciation of fixed assets should be accrued in accordance with the methods that were adopted in the process of the company. If the linear method is used, then for simplification it is possible to use depreciation of the previous period, and subsequently adjust it to the estimated value of depreciation in connection with various receipts or disposals of fixed assets.
These are just a few important factors from a whole series, so if you want to thoroughly understand the features of creating such reports, you should learn to use all the tools.