Based on the projected sales, we can project the Balance Sheet. The projected assets can be reviewed as to whether there is sufficient liquidity is there.
A projected, or pro forma, balance sheet contain assumed information about particular future economic situations. Executives may show balance sheets for worst-case and best-case scenarios, discussing how either category could affect the company’s financial status. A balance sheet is also called a statement of financial position or statement of financial condition. In a projected financial-condition report, accountants include projection data for assets, liabilities and equity, also called net worth. Assets run the range from cash and customer receivable to equipment and real estate. Liabilities include commercial paper and accounts payable.
Projected Total Assets when compared with the total debt and equity, give the extra funds required. While looking at the extra funds required, possibility of smooth repayment of the debt also shall be ascertained.
Trend Analysis
Time Series Analysis
Time Series Analysis evaluates performance over several years. It is helpful in determining, whether the progress is as planned and in planning the future operations. This will help in detecting the symptoms of major problem if any. Time Series Analysis is helpful in checking the accurate projection of projected financial statements.
Index Analysis
The figures of an accounting year is taken as the basis (100%) and figures of other years are compared with that as total percentage or as percentage increase / decrease. The base year may be the earliest year or latest year or any other intervening year. The calculation of trend ratio involves the ascertainment of arithmetical relationship which each item of several years has, to the same item of the base year.
The inefficiency of the base year may reflect as efficiency for the compared years and hence conclusions cannot be drawn easily. However, improvements or others over the years can be ascertained.
Cross-Sectional Analysis
Often, we need to compare the financial ratios with that of other firms in the industry. In fact a competing firm may be taken as Bench-mark company or industry average may be taken for comparison.
The data for this analysis may be obtained from Industry Association publications or Annual Reports or internet.
