Report name: Sample Forecast
How Forecast Assets and Liabilities are Calculated
This is a working example of how your forecast analysis of assets and liabilities, including working capital and net assets are calculated.
This is a working example of how your forecast analysis of assets and liabilities, including working capital and net assets are calculated.
| 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 |
Figurewizard automatically calculates the values for fixed assets net of depreciation. Although these values form part of net assets / equity they rarely represent fair market value.
That is because the role of depeciation is simply to show the residual value of the assets useful working life in a going concern. For that reason their forecast values do not form any part of forecast liquidity / working capital; their true cash values are likely to be very much lower than their balance sheet values.
With two exceptions, forecast current assets only lists the values of assets that can reliably be expected to be turned into cash during the normal course of trade.
The most important of these are cash itself, accounts receivable and stock / inventory. The two exceptions are asset finance interest in suspense and loan interest in suspense.
These are outstanding debts that are reliably expected to fall due for payment within twelve months.
Unlike current assets however they are not restricted to debt associated with current assets. All debt including that for borrowings, such as the bank overdraft, financing the acquisition of both current and fixed assets or dividends declared but still outstanding for payment are included.
Current liabilities less current assets returns net current assets which in turn defines working capital. That represents liquidity which is the source of cash flow from core trading operations.
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 achieve this is by using our unique What-If Calculator.
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.
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.
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.