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 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.
All four profit forecasts calculated by Figurewizard matter but the operating profit forecast is the one that matters the most. It represents 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.
Forecast profits here sets fixed overheads at £430,000 but 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 | 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 |
The imperative to control overheads is not restricted to companies currently facing or suffering liquidity or cash flow problems.
Increased sales activity almost always brings short or medium term pressures on these, so a business that is growing should looking as critically at overheads as anyone else. That is what the What-If Calculator is designed to make possible.
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.
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.
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, 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.
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.
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 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.