Report name: Sample Forecast
How the Balance Sheet Forecast is Calculated
This example shows how Figurewizard calculates your balance sheet forecast. Liquidity, solvency and operating cash flow all derive from the balance sheet.
This example shows how Figurewizard calculates your balance sheet forecast. Liquidity, solvency and operating cash flow all derive from the balance sheet.
| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Fixed Assets | 56,624 | 54,081 | 77,791 |
| Current Assets | 217,675 | 261,733 | 506,750 |
| Total Assets | 274,298 | 315,813 | 584,540 |
| Current Liabilities | 154,652 | 125,407 | 181,003 |
| Long Term Liabilities | 13,878 | 4,095 | 11,648 |
| Total Liabilities | 168,530 | 129,502 | 192,651 |
| Net Current Assets (Working Capital) | 63,022 | 136,326 | 325,747 |
| Net Assets | 105,768 | 186,311 | 391,890 |
| Capital | 5,000 | 5,000 | 5,000 |
| Retained Profits Bfwd | 20,000 | 100,768 | 181,311 |
| add: Profit / Loss after Tax | 80,768 | 80,543 | 205,578 |
| less: Dividend | 0 | 0 | 0 |
| Retained Profits C/Fwd | 100,768 | 181,311 | 386,890 |
| Capital and Reserves (Equity) | 105,768 | 186,311 | 391,890 |
The balance sheet that Figurewizard produces is arguably the most important forecast of all, describing as it does the future financial condition of your business. Solvency, liquidity and operating cash flows are all derived from it.
The balance sheet's two most important numbers are for equity; forecasting balance sheet solvency and working capital forecasting liquidity. Of the two, working capital will always outrank equity in importance.
Net current assets in the balance sheet represents the difference between current assets and current liabilities. That represents working capital, which in turn broadly descibes balance sheet liquidity.
Assets that are concerned exclsuively with core tading activity (operations) that are cash convertible within twelve months are termed as current assets. Apart for cash itself these will include accounts receivable, stock and prepayments.
Current liabilities represents all debt deemed to payable within twelve months, regardless of whether or not they are concerned with core trading.
The What-If Calculator and Planner makes it possible for you to update / change forecasts in real time. Here it has been used to improve working capital and cash by reducing forecast wages and fixed overheads - Each by increments of 5%
| Year 1 less | O/Heads & Wages | Pre-Tax Profit | Equity | Working Capital | Increase / Decrease Borrowings | Bank Year End |
| 0% | 430,000 | 94,381 | 105,052 | 59,993 | 53,854 | -35,439 |
| 5% | 408,500 | 116,779 | 123,911 | 81,165 | 33,488 | -13,261 |
| 10% | 387,000 | 138,712 | 141,677 | 98,931 | 9,962 | 8,452 |
While working capital deficits can be covered by increased borrowings they will only ever buy you time: Whether long or short term, loans do not cure insolvency.
Improved working capital and cash flow also rely on sustainable expenditure for investment in new fixed assets. Their cost, regardless of financing will always affect balance sheet liquidity.
In this sample forecast £30,000 of new main pool assets (e.g. plant and machinery, fixtures, equipment, trucks and vans) and £25,000 for company cars haave been entered, a total of £55,000. Seventy percent of that is financed over 24 months.
The table below shows how that £55,000 will affect liquidity (working capital) and cash flows, followed by what happens to these if first the £25,000 for new cars is removed followed by the £30,000 of new main pool assets.
Despite these assets being 70% financed, the liquiity and cash flow improvements are significant.
| Fixed Asset Acquisitions | Fixed Overheads | Interest Charges | Equity | Working Capital | Increase / Decrease Borrowings | Bank Year End |
| 55,000 | 430,000 | 5,062 | 105,052 | 59,993 | 53,854 | -35,439 |
| 30,000 | 408,500 | 3,104 | 127,097 | 100,956 | 5,616 | -691 |
| 0 | 387,000 | 1,488 | 143,371 | 135,789 | -48,780 | 69,719 |
No comfort can be taken from the fact that the acquisition of fixed assets might be supported by asset finance. While fixed assets do not figure in working capital, repayments plus residual short term debt (payable within one year) deplete it.
Resolving cash flow problems by delaying payments for current liabilities only makes a bad situation worse.
Financial penalties for late payment of taxes are bad enough but the inevitable loss of confidence in your business that goes with late payment to suppliers will be worse still by putting commercial credit and therefore operating cash flows at risk.
Cost less depreciation describes the net book value of fixed assets in the balance sheet. That represents the residual value of their forecast working life in the business, not their estimated fair market values.
This is an important distinction. Depreciated net book values for fixed assets are invariably significantly lower than what could reasonably be expected to be realised if put up for sale. In the event of a forced sale (which is how bank managers will view their value) that realisable value will be lower still.
Fixed assets play no part in defining liquidity other than depleting it upon their acquisition; regardless of asset financing.
No intervention by a user is called for to calculate this balance sheet forecast. Figurewizard will automatically produce it just from your forecast sales, margins, overheads, investment and simple cash ratios.
With your first attempt at forecasting with Figurewizard there are likely to be areas of profit, cash, and balance sheet value that you will want to change. This is what the What-If Calculator and Planner is for.
For example it allows you to address deficits for profits, working capital and cash flow by amending your original figures such as profit margin, overheads, year-end stock, investments and financing , all with single clicks of the mouse.
As you do so, the calculator, which displays the key features of your forecasts such as operating profits, profit after tax, cash flow, bank balances, working capital and net worth all change too, again in real time.
You can also use the What-If Calculator to select factoring / supply chain financing. Once again all this takes are single clicks to select the percentage of invoicing to be factored and the rate of interest to be charged. Once more as yo do so, everything changes in real time.
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