From the course: Finance Foundations

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Forecasting financial statements

Forecasting financial statements

From the course: Finance Foundations

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Forecasting financial statements

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An additional use of financial statements is in financial statement forecasting. We can use the structure of accounting to create a disciplined, high-level forecast of the future. In particular, we can use financial statement forecasting to figure out a company's financing needs for the future. Am I going to need to borrow money? Am I going to need to search for new investment by shareholders or partners? There are some simple ideas that underlie the process of financial statement forecasting. If I'm Walmart and my sales go up by 20 percent, what else is going to go up by about 20 percent? My cost of sales. If my sales go up, I will also need more employees, my wages will go up. I'll probably use more electricity, my utilities will go up. Some things naturally increase as sales increase. Now, with respect to the balance sheet, if I'm going to have 20 percent more sales, I'm just going to naturally need more cash. I'm going to need more inventory. I'm probably going to have more…

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