This is a Working Example of our Forecasts
Registered users can produce their own business forecasts in minutes; exactly as is shown here.

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.

forecast for year beginning the 1st.May 2017May 2018May 2019
Sales1,500,0001,650,0002,200,000
add: Delivery / Service Charges37,50041,25055,000
Total Sales1,537,5001,691,2502,255,000
less: Cost of Goods Sold885,000973,5001,298,000
Gross Profit Cfwd652,500717,750957,000
    
Wages NI and Pensions300,000310,000330,000
Administrative Overheads105,800127,200145,500
Selling Overheads136,381156,500203,567
Depreciation10,87617,54320,290
Operating Overheads and Expenses553,057611,243699,357
    

Operating Profit

99,443106,507257,643
less: Interest Charges5,0627,4695,394
add: Exceptional Item (Profit on Asset Sales)000

Pre-Tax Profit for the Year

94,38199,038252,249
less: Corporation Tax13,61318,49546,671
Net Profit Cfwd80,76880,543205,578
    
Corporation Tax % of Pre Tax Profit14.4%18.7%18.5%

How to Calculate the Profit and Loss Forecast

This working example displays four steps towards forecast gross profit, operating profit, pre-tax profit and net profit after tax.

These are produced simply from your predicted figures for sales, gross profit margin, overheads and so on plus a few simple ratios. The system then does all of the work to arrive at these forecasts, including automatically calculating and applying VAT and corporation tax.

The Operating Profit Forecast

All four profit forecasts calculated by Figurewizard matter but the operating profit forecast is the one that matters the most. It represents the profit expected to arise from core trading activity (operations) and nothing else.

Profits (or losses) from the sale of fixed assets or other investments are "exceptional items" unconnected with core trading activity, so are not added to the profit and loss or net income forecast until after operating profit has been calculated.

How to Improve Operating Profit from Fixed Overheads

Using the What-If Calculator 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

How to Improve Operating Profit from Fixed and Variable Overheads

Again using the What-If calculator fixed overheads are reduced 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 improved 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 they are entirely feasible.

Forecast Profits and Cash Flow Deficits

Profits in a business plan depend on an uninterrupted supply of goods and services, delivered 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.

Financial Fees and Interest Charges

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 tax-deductible charge to both forecast net profit and forecast taxable profit but because they are solely concerned with servicing external debt they are not chargeable until after operating profit has been calculated.

How the Taxable Profit Forecast is Calculated

The corporation tax forecast is calculated on the taxable profit. That calls for extensive adjustments to published pre-tax profit, all of which Figurewizard calculates and applies automatically.

That is why the % of pre-tax profit is at odds with the rate of corporation tax; currently (2019) 19% in the first year falling to 17% from 2020. 

Depreciation and Capital Allowances

Depreciation, which is a provision not involving cash transfers is added back to be substituted for by capital allowances.

Up to a threshold of £200,000, 100% of the cost of new main pool assets qualify for first year allowances (AIA - the annual investment allowance) to be deducted from taxable profit.

The current (2019) £200,000 threshold rises to £1,000,000 from 2020

Commercial vehicles qualify for AIA but not company cars, which only attract an allowance of 8% p.a.

Taxable Profit and Overheads and Expenses

Entertainment expenses, fines and provisions such as for bad debts or depreciation, which do not involve cash transfers are not tax deductible : These are added back to the taxable profit.

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.

Profit after Tax and Forecast Equity

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.

Working with this Profit and Loss Forecast

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 plus a few simple ratios.

Beyond those figures no further intervention is called for as everything, including VAT transactions and corporation tax which are calculated and applied to the forecasts using nothing more than the information you have provided.

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