Report name: Sample Forecast
How Forecast Assets and Liabilities are Calculated
This example of our assets and liabilities analysis shows how Figurewizard calculates and displays forecast assets and liabilities.
This example of our assets and liabilities analysis shows how Figurewizard calculates and displays forecast assets and liabilities.
| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Fixed assets | |||
| Main Pool Assets | 28,873 | 34,871 | 42,958 |
| Company Cars | 27,751 | 19,210 | 34,832 |
| Total Fixed Assets | 56,624 | 54,081 | 77,791 |
| Current Assets | |||
| Stock / Inventory | 125,000 | 150,000 | 170,000 |
| Sales Ledger | 86,092 | 93,178 | 146,549 |
| Dr / Cr Card Balance | 0 | 0 | 0 |
| Prepaid Letters of Credit | 0 | 0 | 0 |
| Vat Refundable | 0 | 0 | 0 |
| Cash at Bank | 0 | 14,300 | 183,993 |
| Factoring CR. Balance | 0 | 0 | 0 |
| Asset Finance Interest in Suspense | 6,583 | 4,255 | 6,208 |
| Loan Interest in Suspense | 0 | 0 | 0 |
| Total Current Assets | 217,675 | 261,733 | 506,750 |
| Current Liabilities | |||
| Trade Creditors | 60,821 | 60,195 | 76,752 |
| Sundry Creditors | 13,428 | 17,381 | 21,374 |
| Vat Payable | 5,731 | 7,899 | 10,606 |
| Hire Purchase | 21,350 | 17,865 | 21,333 |
| Loans | 0 | 0 | 0 |
| Bank Overdraft | 35,439 | 0 | 0 |
| Factoring Dr. Balance | 0 | 0 | 0 |
| Corporation tax Due | 13,613 | 18,495 | 46,671 |
| Asset Finance Interest in Suspense | 4,270 | 3,573 | 4,267 |
| Loan Interest in Suspense | 0 | 0 | 0 |
| Dividends Payable | 0 | 0 | 0 |
| Total Current Liabilities | 154,652 | 125,407 | 181,003 |
| Long Term Liabilities | |||
| Asset Financing | 11,565 | 3,413 | 9,707 |
| Loan | 0 | 0 | 0 |
| Asset Finance Interest in Suspense | 2,313 | 683 | 1,941 |
| Loan Interest in Suspense | 0 | 0 | 0 |
| Total Long Term Liabilities | 13,878 | 4,095 | 11,648 |
| Net Current Assets (Working Capital) | 63,022 | 136,326 | 325,747 |
| Net Assets | 105,768 | 186,311 | 391,890 |
Available cash from factoring is only drawn down to render an overdrawn bank account to zero. Surplus factoring cash is then retained in the factoring account.
In the event that there is insufficient available factoring cash to clear a monthly bank overdraft the system will then draw down the maximum available.
Stock / inventory levels directly influence liquidity (working capital) and cash flow - The lower the level of goods on the shelf, the better. The table below illustrates how liquidity and cash flow improve as stock is reduced by stages of 20%.
| Year 1 less: | Stock / Inventory | Short Term Liquidity | Operating Cash Flow | Increase / Decrease in Borrowings | Bank: Year -End |
| 0% | 125,000 | 60% | 12,208 | 53,854 | -35,439 |
| 20% | 100,000 | 72% | 36,533 | 28,665 | -10,250 |
| 40% | 75,000 | 91% | 60,858 | 4,033 | 14,382 |
This table is just one example of how planning reductions in expenditure for forecasts which have been saved to "my account" will improve profits and cash flow. The most efficient way to fine tune forecasts in this way is by using the WhatIf calculator and planner.
Fixed asset purchases, their VAT, depreciation and financing are all budgeted. For example assets acquired at a cost of 6,000 in a given year are allocated by the system at £500 a month.
That means that depreciation will be charged on 500 in month 1, 1,000 in month 2, 1,500 in month 3 and so on. Financing and associated interest charges are allocated on the same basis. The sale of fixed assets are treated in the same way on a first in first out basis.
Despite these being 70% financed over two years, removing first the investment in cars followed by the investment in main pool assets will result in significant improvements for short term liquidity and borrowings as follows:
| Fixed Assets Year 1 less | i.e. Fixed Assets Value Acquired | Short Term Liquidity | Operating Cash Flow | Increase / Decrease Borrowings | Bank Year-End |
| 0 | 55,000 | 60% | 12.208 | 53,854 | -35,439 |
| 25,000 | 30,000 | 68% | 12,208 | 27,590 | -22,665 |
| 55,000 | 0 | 78% | 13,708 | -5,530 | -8970 |
Unforeseen events can affect the liability for loans such as bank overdrafts, making forecast interest liability unpredictable. For that reason interest for such loans is only charged to the accounts as and when it arises.
Forecast interest liabilities for fixed term loans that are subject to fixed rates can be accurately calculated though, in which case their liability should be disclosed in the balance sheet. This job is done by the interest suspense account.
Fixed interest payables are allocated as current assets in the balance sheet. That is then cancelled out by allocating it in turn to current liabilities (payable within 12 months) and long term liabilities (payable beyond 12 months). This discloses the potential value of forecast fixed term interest debt in the balance sheet while preserving the rule of not charging it.
Current liabilities less current assets returns net current assets which defines working capital, the source of liquidity and cash flow.
A Figurewizard forecast showing a working capital deficit must be avoided at all costs therefore. It would be signifying an imminent cash flow crisis meaning that you will have to reconsider projected overheads and / or expenditure on fixed assets. The ideal way to do this is by using our unique What-If Calculator.
A more stringent measure of liquidity is the quick ratio; also known as the "acid test," which calculates short term liquidity by ignoring the value of stock / inventory.
Where this ratio is below 100% the business will be using borrowings to some degree to finance its trading. As the table above shows, the higher this ratio goes, the lower the need for borrowings becomes.
Investment in fixed assets always comes at a cost to liquidity regardless of asset financing. Taken too far, excessive investment in fixed assets can also result in a threat to solvency.
This can be measured by the fixed assets to net worth ratio, one of the key solvency ratios. For example a company with fixed assets of 100,000 and a net worth of 150,000 has a ratio of 67%; well within the 75% acceptable benchmark.
A balance sheet forecast showing a fixed asset to net worth ratio above 100% will call for revising the acquisition and / or their financing.