How to Prepare Projected Financial Statements

Projected financial statements provide assumptions about a given company’s financial situation in the future, whether it is an annual or quarterly projection. Preparing projected financial statements is a lengthy task, as it requires analysis of the company’s finances, reading previous budgets and income statements, and examining the company’s current financial situation to make assumptions about the business’ financial potential. The process is the same for smaller, sole-proprietor businesses and well-established corporations.

Obtain a copy of the company’s business plan. Read through the company’s short- and long-term goals, as these affect the structure of the company’s budget. The budget reveals how the company organizes its available funding and identifies how the funding is spent -- an important part of financial projection. Write down the short- and long-term goals.

Read through the most recent edition of the company’s annual report. The report reveals any hardships or financial issues the company has faced in previous fiscal periods and quarterly periods. For example, a company may have lost an investor, creating a drop in general revenue or income. Write down any potential risks outlined in the annual report that have the opportunity of occurring in the fiscal period for which you are preparing the projection.

Examine the company’s comparative balance sheet, which shows the its given assets, liabilities and equities at the end of a fiscal period. A comparative balance sheet shows how the company has evolved over the years, revealing how much the company has either increased its value in assets or decreased in value with an increase in liabilities. Note the rate of growth to help you in your projections.

Read through the most recent interim statements, which reveal the company’s financial situation of the past few months. Each interim statement covers a 3-month period, so gather the statements filed since the last annual report to get a current financial standing of the company. These interim statements also include the recent income statements.

Examine the company’s annual projections based on the growth shown in the comparative balance sheet. Estimate the percentage of growth each year to get a starting figure for your projections. For example, if the net worth of the company has increased 2 percent each year due to an increase in assets or decrease in liabilities, a reasonable estimate is 2 percent above the most recent comparative balance sheet value.

Apply the risks outlined in the annual reports to see how each risk would potentially affect the projected financial statement value. If the financial projection hinges on a set revenue figure or a single investor, then the increase in value is potentially harmed if the risks become valid. Apply any recent changes in the company’s financial information as revealed by the interim statements. For example, a recent boost in income due to a new product launch may alter the projections, if more products are planned for release.

Examine your projections based on the company’s financial facts and annual growth and compare them to the goals set out in the business plan. Determine whether short-term goals will be met in the following fiscal year. Do not be ambitious when creating the projections but provide a realistic estimate.

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About the Author

Based in Toronto, Mary Jane has been writing for online magazines and databases since 2002. Her articles have appeared on the Simon & Schuster website and she received an editor's choice award in 2009. She holds a Master of Arts in psychology of language use from the University of Copenhagen in Denmark.