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 |
Factoring (also known as invoice discounting) or supply chain financing are just two of the many options that can be included in Figurewizard forecasts.
The examples below are drawn from the working examples on the Figurewizard website. Changes and resultant updates to profits, cash and the bank account are calculated by the What-If Calculator and Planner in a matter of seconds.
Vistors can go to that screen and make their own changes, including selecting factoring / supply chain financing to assess their benefits to cash flow.
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, cash flow and the bank 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 |
These planned reductions in stock values to improve liquidity, cash flow, borrowings and the bank were produced in real time using the What-If Calculator and Planner, and just two clicks of the mouse.
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.
In this example 70% of the cost of new fixed assets are financed. Again using the What-If Calculator and Planner reducing those investments will result in significant improvements for short term liquidity and borrowings.
| 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.