FinancialForecasting

FinancialForecasting - FINANCIAL FORECASTING &...

Info iconThis preview shows pages 1–15. Sign up to view the full content.

View Full Document Right Arrow Icon
FINANCIAL FORECASTING & VALUATION for the Entrepreneur
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Operating assumptions drive the income statement Income statement is one driver of cash flow
Background image of page 2
3 Operating items refers to Revenues, Expenses and Expenditures that are not impacted by the company's Capital Structure i.e., they are not affected by Interest Expense
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Our goal is to understand the factors that drive… EBIT (operating income)
Background image of page 4
5 Revenue -Cost of Goods Sold Gross Profit -Selling General and Adminstrative Expenses EBITDA -Depreciation and Amortization EBIT Capital Expenditures
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Estimating growth rates It is easier to think about (and convince people about) future growth rates than future cash flows. The terminal value (for DCF) will be largely determined by the growth rate.
Background image of page 6
7 Historical Operating Assumptions Backward-looking Provide historical information about past Revenue and Profitability Historical revenue growth and margin levels are key factors in the forecasting process. They should be your reference point when available. NOTE: They are useful only if the status quo is maintained, erratic growth may be due to acquisitions or divestitures
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Calculating growth rates 1 1 ) ( - - - = t t t Sales Sales Sales Growth Equivalent to… 1 1 - = - t t Sales Sales Growth
Background image of page 8
9 Building the Assumptions Everything Starts with Sales
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Sales and Marketing Forecasts Getting reasonable monthly revenue projections
Background image of page 10
11 Some basic questions What percentage of your target market has used your product or service before? How often does this group purchase your products or services? How many will they purchase? What percentage of your target market are potentially repeat customers? How will demographics, socioeconomics and/or government legislation potentially alter the purchasing power of your target market?
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12 Three different approaches Comparable method Build up method / Bottom-Up Forecasting Top Down Forecasting
Background image of page 12
13 Comparable Method Models sales forecasts after what other companies have achieved, adjusting for age, variances in product attributes, support services, etc. See what your competitors are doing, and then explain why your business is different
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Comparable Method If your competitors are only selling 100,000 units a year, then there better be a very good reason why you are selling 300,000. Also, from where will your revenues come?
Background image of page 14
Image of page 15
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 42

FinancialForecasting - FINANCIAL FORECASTING &...

This preview shows document pages 1 - 15. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online