Exercise 15.1
Forecast income statement
1. Estimate the sales volume and value in each month of your first year. Check that
there is sufficient demand and that your targets are achievable, within the operating
and cost parameters of the business.
Right click and select ‘Worksheet object’ > Open to use the table. When you have
finished entering the figures, close the worksheet to return to the NVC Exercises.
You most close the worksheet before opening the next worksheet.
Month
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Total
Units
Value
0
0
Jot down the assumptions on which this is based.
Click here to enter text.
2. Review Exercise 14.1. For any fixed assets you need to purchase, estimate their
useful life and calculate the annual depreciation charge. This goes to the income
statement as a cost and reduces the value of the assets in the balance sheet.
Click here to enter text.
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3. Using the pro forma below, draw up a forecast income statement for your first year of
operation.
4. Repeat the process for your second and third years.
Right click and select ‘Worksheet object’ > Open to use the table. Fill in the figures for all the
categories given in orange. When you have finished entering the figures, close the
worksheet to return to the NVC Exercises. You most close the worksheet before opening the
next worksheet.
Pro Forma
Year 1
TURNOVER
Cost of Sales
Materials
Wages
Factory overheads
Total Cost of Sales
Year 2
Year 3
0.00
0.00
0.00
GROSS PROFIT
Operating Expenses
Selling and marketing costs
Distribution costs
Administrative and general costs
Other costs
Deperciation
Total Operating Expenses
0.00 A
0.00
0.00
0.00 B
0.00
0.00
OPERATING INCOME
Other income
Interest income
Interest expense
Total Other Income
0.00 A-B
0.00
0.00
0.00 C
0.00
0.00
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Exercise 15.2
Estimating your breakeven
Using the figures from the previous exercise and the pro forma on the following page:
1. Re-analyse your costs into variable and fixed. Repeat for your second and third
years.
2. Calculate your contribution margin (B ÷ A). This will calculate automatically.
3. Calculate your breakeven point, before [C ÷ (B ÷ A)] and after interest
[(C + D) ÷ (B ÷ A)]. This will calculate automatically.
4. Calculate your margin of safety after interest (A – [(C + D) ÷ (B ÷ A)] ÷ A). This will
calculate automatically.
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Right click and select ‘Worksheet object’ > Open to use the table.
Enter figures for: Turnover, Variable costs, Fixed Costs, and Operating Income. The
worksheet will automatically calculate the: Contribution, Operating Income, Net Income,
Contribution Margin, Breakeven Point before Interest, Breakeven Point after Interest, and
Margin of Safety after Interest.
When you have finished entering the figures, close the worksheet to return to the NVC
Exercises. You must close each worksheet before opening the next worksheet.
Year 1
A
TURNOVER
Variable costs
Materials
Other:
0
0B
Other :
CONTRIBUTION
Fixed costs
Selling & market costs
Administrative & general costs
Deperciation
Other:
0C
0 B-C
Other:
OPERATING INCOME
Other Income
Interest income
0D
0 B-C-D
Less: Interest expense
NET INCOME
CONTRIBUTION MARGIN
0
BREAKEVEN POINT BEFORE INTEREST
BREAKEVEN POINT AFTER INTEREST
0
0
MARGIN OF SAFETY AFTER INTEREST
0
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Year 2
A
TURNOVER
Variable costs
Materials
Other:
0
0B
Other :
CONTRIBUTION
Fixed costs
Selling & market costs
Administrative & general costs
Deperciation
Other:
0C
0 B-C
Other:
OPERATING INCOME
Other Income
Interest income
0D
0 B-C-D
Less: Interest expense
NET INCOME
CONTRIBUTION MARGIN
0
BREAKEVEN POINT BEFORE INTEREST
BREAKEVEN POINT AFTER INTEREST
0
0
MARGIN OF SAFETY AFTER INTEREST
0
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Year 3
A
TURNOVER
Variable costs
Materials
Other:
0
0B
Other :
CONTRIBUTION
Fixed costs
Selling & market costs
Administrative & general costs
Deperciation
Other:
0C
0 B-C
Other:
OPERATING INCOME
Other Income
Interest income
0D
0 B-C-D
Less: Interest expense
NET INCOME
CONTRIBUTION MARGIN
0
BREAKEVEN POINT BEFORE INTEREST
BREAKEVEN POINT AFTER INTEREST
0
0
MARGIN OF SAFETY AFTER INTEREST
0
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Exercise 15.3
Forecast flow statement
1. Using the pro forma on the following page, draw up a forecast flow statement for your
first year of operation based upon the information you have used for Exercises 14.1
and 15.1.
2.
Decide on the salary or drawings you will take out. Update the forecast to reflect this.
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Right click and select ‘Worksheet object’ > Open to use the table. When you have finished entering the figures, close the worksheet to return to
the NVC Exercises. You must close this worksheet before opening the next worksheet.
Month
Cash receipts
Sales
Capital
introduced
Total receipts
Cash payments
Materials
Wages
Sales & mktg
Admin. & general
Asset purchases
Drawings
.………….
(other)
……………
(other)
Total payments
Net cash flow
Cash B/F
Cash C/F
1
2
3
4
5
6
7
8
9
10
11
12
Total
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
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Exercise 15.4
Forecast balance sheet
1. Using the pro forma on the following page, draw up a forecast balance sheet at the
end of your first year by listing your assets and liabilities.
 Remember to insert the share capital you will introduce yourself or raise
externally and any long-term loan (D). The ‘share capital’ figure should also
be shown as ‘capital introduced’ (Exercise 15.3).
 The fixed assets cost should be reduced by the depreciation charge (Exercise
15.1.2).
 The ‘profit for current year’ figure should be your ‘net income’ (Exercise
15.1.1).
 The ‘cash’ or ‘overdraft’ figure for year 1 should be your final ‘cash C/F’ in
month 12 (Exercise 15.3.1). If you prepare cash-flow forecasts for subsequent
years, these figures should also agree.
 ‘Profit for current year’ comes from the 'net profit' row in 15.2 for years 1, 2
and 3. The figure for year 1 is carried forward into year 2 and is shown as
'Profit brought forward'. The figure for year 2 is carried forward into year 3 and
is shown as ‘Profit brought forward’.
 Make sure your balance sheet balances and that the final box is equal to
A+B-C-D.
2. Draw up the forecast balance sheets for your second and third years.
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Right click and select ‘Worksheet object’ > Open to use the table. When you have finished
entering the figures, close the worksheet to return to the NVC Exercises. You must close
each worksheet before opening the next worksheet.
Year 1
Forecast balance sheet
Fixed Assets
Cost
Less deperciation
0A
Current assets
Stock
Deptors
Cash
Total
0B
Less: creditors due within one year
Overdraft
Trade creditors
Other liabilities
Total
Net current assets
NET ASSETS
Less: Long term loans
0C
0 B-C
0 A+B -C
D
0 A+B-C-D
Capital and reserves
Share capital
Profit brought forward
Profit for current year
0
0
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Year 2
Forecast balance sheet
Fixed Assets
Cost
Less deperciation
0A
Current assets
Stock
Deptors
Cash
Total
0B
Less: creditors due within one year
Overdraft
Trade creditors
Other liabilities
Total
Net current assets
NET ASSETS
Less: Long term loans
0C
0 B-C
0 A+B -C
D
0 A+B-C-D
Capital and reserves
Share capital
Profit brought forward
Profit for current year
0
0
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Year 3
Forecast balance sheet
Fixed Assets
Cost
Less deperciation
0A
Current assets
Stock
Deptors
Cash
Total
0B
Less: creditors due within one year
Overdraft
Trade creditors
Other liabilities
Total
Net current assets
NET ASSETS
Less: Long term loans
0C
0 B-C
0 A+B -C
D
0 A+B-C-D
Capital and reserves
Share capital
Profit brought forward
Profit for current year
0
0
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Exercise 15.5
Evaluating your forecast performance
1. Using the checklist opposite, calculate your forecast performance ratios, based on
Exercises 15.1. 15.2 and 15.4.
Click inside the table to begin using it. These calculations will need to be done manually.
Performance
Year 1
Year 2
Year 3
Return to shareholders
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Net profit
Shareholder’s funds
(total assets – total liabilities’)
Return on total assets
Operating profit
Shareholders’ funds + loan capital
(total assets – current liabilities)
Profitability
Operating profit margin
Operating profit
Sales/turnover
Gross profit margin
Gross profit
Sales/turnover
Contribution margin
Contribution
Sales/turnover
Asset management
Total asset turnover
Sales/turnover
Total assets
Debtor receivables turnover
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Sales/turnover
Debtors/receivables
Stock/inventory turnover
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Sales/turnover
Stock/inventory
Liquidity
Current ratio
Current assets
Current liability
Quick ratio
Current assets, excluding
stock/inventory
Current liabilities
Risk
Gearing/leverage
All loans + overdraft
Shareholder’s funds
Interest cover
Operating profit
Interest
Margin of safety
Sales/turnover – breakeven point
Sales/turnover
Exercise 15.6
Review of your objectives and milestones
1. Have these results met the objectives you set yourself in Exercise 2.2? If not, list the
things you need to do or amend your objectives.
Click here to enter text.
2. Update Exercise 11.3.4 to create a list of milestones (achievements) for your
business plan.
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Exercise 15.6
Review of your objectives and milestones
1. List the things you need to put in place to ensure good financial control.
Click here to enter text.
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