Report name: Sample Forecast
How the Profit and Loss Forecast is Calculated
This financial year-end profit forecast measures return on investment. The operating profit, describing net income from core trading is its key component.
This financial year-end profit forecast measures return on investment. The operating profit, describing net income from core trading is its key component.
| 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 | 47,077 |
| Net Profit Cfwd | 80,768 | 80,543 | 205,172 |
| Corporation Tax % of Pre Tax Profit | 14.4% | 18.7% | 18.7% |
This example of a profit and loss forecast is calculated simply from your own projected figures for sales, margin, overheads, cost and sales, values of assets bought and sold, financing plus a few simple ratios.
As with all other forecasts, profit and loss forecasting can be for one, two or three years.
UK VAT and Corporation tax charges are automatically calculated and applied to the forecast .by our system.
Operating profit is concerned with profits arising from core trading activity, nothing else.
It therefore measures the predicted performance of your business plan. Equally important, your operating profit forecast is also a major component of net operating revenue, which forms part of the operating cash flow forecast.
Profits (or losses) from the sale of fixed assets or income from investments are "exceptional items" i.e. not connected with core trading activity.
As a result exceptional profits are not added to the profit and loss or net income forecast until after the operating profit forecast has been calculated.
In this example, forecast overheads include fixed overheads of £130,000 and wages of £300,000, a total of £430,000. Reducing these using the What-If Calculator will dramatically improve both profits and cash.
| 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 |
In this example the What-If calculator is again used to reduce fixed overheads are reduced but this time with reductions of 0.25% added to the % of sales for the cost of shipping orders and providing for bad debts.
| Shipping and Bad Debts | Fixed OH + Wages | Operating Profit | Working Capital (Liquidity) | Operating Cash Flow | Bank: Year-End |
| 7.0% | 430,000 | 99,443 | 63,022 | 12,208 | -35,439 |
| 6.5% | 408,500 | 128,523 | 87,430 | 40,896 | -5,698 |
| 6.0% | 387,000 | 157,603 | 111,326 | 69,584 | 23,410 |
To arrive at an HMRC compliant taxable profit forecast the pre-tax profit forecast is adjusted, for example by substituting capital allowances for depreciation.
The forecast for taxable profit and the corporation tax charge is shown separately.
Fees associated with financing such as bank, charge card or invoice financing service charges are chargeable to operating profit: Interest charges are not.
Interest is a tax-deductible charge to both forecast net profit and forecast taxable profit but being exclusively concerned with financing activity it is not charged to operating profit.
Retained profits after tax are those available for distribution as dividends. They are variously referred to in the balance sheet as reserves or shareholders funds and form part of the equity or net worth of the company.