Report name: Sample Forecast
How the Profit and Loss Forecast is Calculated
This example demonstrates how Figurewizard calculates and displays operating, pre-tax and net profit forecasts simply using your proposed figures.
This example demonstrates how Figurewizard calculates and displays operating, pre-tax and net profit forecasts simply using your proposed figures.
| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Sales | 1,500,000 | 1,650,000 | 2,200,000 |
| add: Delivery / Service Charges | 37,500 | 41,250 | 55,000 |
| Total Sales | 1,537,500 | 1,691,250 | 2,255,000 |
| less: Cost of Goods Sold | 885,000 | 973,500 | 1,298,000 |
| Gross Profit Cfwd | 652,500 | 717,750 | 957,000 |
| Wages NI and Pensions | 300,000 | 310,000 | 330,000 |
| Administrative Overheads | 105,800 | 127,200 | 145,500 |
| Selling Overheads | 136,381 | 156,500 | 203,567 |
| Depreciation | 10,876 | 17,543 | 20,290 |
| Operating Overheads and Expenses | 553,057 | 611,243 | 699,357 |
| Operating Profit | 99,443 | 106,507 | 257,643 |
| less: Interest Charges | 5,062 | 7,469 | 5,394 |
| add: Exceptional Item (Profit on Asset Sales) | 0 | 0 | 0 |
| Pre-Tax Profit for the Year | 94,381 | 99,038 | 252,249 |
| less: Corporation Tax | 13,613 | 18,495 | 46,671 |
| Net Profit Cfwd | 80,768 | 80,543 | 205,578 |
| Corporation Tax % of Pre Tax Profit | 14.4% | 18.7% | 18.5% |
This working example of a profit and loss forecast Figurewizard produces for its users simply from their predicted figures for sales, margin, overheads, new fixed assets, finance and so on plus a few simple ratios.
It illustrates the four steps towards calculating a business's return on investment. These are gross profit, operating profit, pre-tax profit and net profit (also known as net income) after tax.
Figurewizard does all of the work to produce this and all of the other forecasts which includes automatically calculating and applying VAT and corporation tax with no further user input called for.
All four reported profit forecasts matter but the one that matters the most is the operating profit forecast. That will represent the profit expected to arise from core trading activity (operations) and nothing else.
Profits (or losses) from the sale of fixed assets are "exceptional items" unconnected with core trading activity, so are never added to profit and loss until after the operating profit has been calculated.
Here using the What-If Calculator when fixed overheads plus wages (total £430,000) are reduced by steps of 5% profit, cash and equity improve as follows:
| Year 1 less: | Fixed OH + Wages | Pre - Tax Profits | Working Capital (Liquidity) | Operating Cash Flow | Bank: Year End |
| 0% | 430,000 | 94,381 | 63,022 | 12,208 | -35,439 |
| 5% | 408,500 | 116,779 | 81,165 | 33,488 | -13,261 |
| 10% | 387,000 | 138,712 | 98,931 | 54,768 | 8,452 |
Here the What-If calculator reduces fixed overheads by steps of 5% and bad debts and shipping by 0.25% each of sales to improve profit, cash and equity
| Shipping and Bad Debts | Fixed OH + Wages | Pre - Tax Profits | Working Capital (Liquidity) | Operating Cash Flow | Bank: Year-End |
| 7.0% | 430,000 | 94,381 | 63,022 | 12,208 | -35,439 |
| 6.5% | 408,500 | 124,514 | 87,430 | 40,896 | -5,698 |
| 6.0% | 387,000 | 154,015 | 111,326 | 69,584 | 23,410 |
These examples of dramatically improving profits, liquidity, cash and debt using the What-If Calculator may seem remarkable but for any business that gets its budgets and therefore its forecasts right, then rigorously implements them they are entirely feasible.
Everything about profits displayed in your business plan will depend on an uninterrupted supply of goods and services as and when they are needed.
Nothing is more likely to create such interruptions than cash flow deficits. Even a single month's shortage of cash can result in interruptions to supply, a loss of confidence among suppliers and serious consequences for your profit forecast.
Fees associated with financing such as bank, charge card or invoice financing service charges are chargeable to operating profit: Interest charges are not.
Interest charges are a legitimate tax-deductible charge to both the forecast net profit and the foreast taxable profit but as they are solely concerned with servicing external debt / financing as opposed to trading operations, they only apply once the operating profit has been calculated.
Net pre-tax profit only serves as the basis for the calculation of the forecast taxable profit. HMRC then require it to be adjusted to take account of capital allowances and non-deductible overheads.
In the UK the substitution of capital allowances for depreciation of fixed assets is usually the principal adjustment when calculating the taxable profit. Entertainment expenses, fines and provisions are not tax deductible however: These will be added to taxable.
Marginal relief for net profit (net income) below £1.5 million no longer applies as the standard corporation tax rate is now the same for profits of all sizes.
Retained profits after tax is that which is available for distribution of dividends. It is variously referred to in the balance sheet as reserves or shareholders funds forming part of the equity or net worth of the company.
What you see here is an example of Figurewizard's profit and loss forecast. It is automatically created by our system using nothing but your own forecast figures for sales, margin, overheads and investment.
Beyond those figures no further intervention is called for as everything, including VAT transactions and corporation tax are calculated and applied to all forecasts simply from those information you will have provided.