Types of Financial Statements Used in Forecasting

Name: Types of Financial Statements Used in Forecasting
Author: Anna Bull

In this module, you will be introduced to financial forecasting. A financial forecast is an educated estimate of future financial positions, such as revenues…

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A financial forecast is an educated estimate for future financial positions, such as revenues and expenses for a specific time period. Let's start by looking at three types of financial statements integral to forecasting, balance sheets, income statements and cash flow statements. You'll also be introduced to what pro forma financial statements are, and how they can assist in forecasting. The first financial statement we'll discuss is the balance sheet. The balance sheet is a summary of business's finances using the accounting equation, total assets equal the sum of company liabilities plus shareholder equity. The balance sheet is a useful tool when it comes to business planning. It's also helpful when a business needs additional financing. By using a balance sheet, a business can present lenders and investors with a detailed financial picture in attempts to secure needed financing. To create a balance sheet that compliments business forecasting, you have to consider how key areas may change over time. Some areas such as inventory, accounts receivable and accounts payable often correspond to sales, making projections easier. The most common assets a business has that are relevant and projected balance sheets are cash, inventory and fixed assets. While the amount of cash generated may increase at a steady rate, available cash on a balance sheet might not always be proportionate to the sales a business anticipated. For example, a business may decide to reinvest part of the cash received causing its cash holdings to grow at a lower than expected rate. Now let's turn to liability and equity items on a balance sheet. Major liability items on a projected balance sheet generally include, accounts payables, including short-term and long-term debts. Accounts payables typically result from trade financing inventory. For example, if your sales increase, then you'll likely require more inventory to support those sales, leading to more outstanding accounts payables. Next, there are equity items. Owner's equity and retained earnings are two of the most common sources of equity financing. When balance sheet projections are initially made, the owner's equity isn't adjusted. Whether or not a business expects to issue additional equity depends on any future financing plans. Making from a balance sheet also involves accounting for all short-term and long-term assets. Short-term assets include the business's current amount of cash and accounts receivable. Long-term assets can include buildings, property, and vehicles. A business also has to identify its current and long-term liabilities. Current liabilities are financial obligations that a business must settle within a given operating cycle. Long-term liabilities are due beyond that. Common liabilities in business are payroll, labor services and loan payments. In order to meet a finalized projection, subtract your liabilities from your assets. The balance sheet forecast can give a business valuable insight into how secure its financial positions will be in the future. It can also help you make important financial determinations, such as the need for budget cuts or loans.

Intermediate Provider : Anna Bull 4 Lessons · 10m in Arabic, German, English, Spanish, French, Portuguese, Chinese

Course Description

In this module, you will be introduced to financial forecasting. A financial forecast is an educated estimate of future financial positions, such as revenues and expenses, for a specific time period. These lessons will cover three types of financial statements integral to forecasting: balance sheets, income statements, and cash flow statements. You will also learn what pro forma financial statements are and how they can assist you with forecasting.

What You'll Learn

Identify which financial statements are used in financial forecasting
Analyze key historical financial statement data
Examine balance sheets, income statements, and cash flow statements as the three statements integral to forecasting
Explain what pro forma financial statements are and how they assist with forecasting
Define a financial forecast as an educated estimate of future financial positions for a specific time period

Key Takeaways

A financial forecast is an educated estimate of future financial positions, such as revenues and expenses, for a specific time period.
Three types of financial statements are integral to forecasting: balance sheets, income statements, and cash flow statements.
Pro forma financial statements can assist with forecasting.
Forecasting relies on analyzing key historical financial statement data.

Frequently Asked Questions

What does this module cover?

It introduces financial forecasting and covers three types of financial statements integral to forecasting: balance sheets, income statements, and cash flow statements. It also covers what pro forma financial statements are and how they can assist with forecasting.

What is a financial forecast?

A financial forecast is an educated estimate of future financial positions, such as revenues and expenses, for a specific time period.

What lessons are included?

The module includes four lessons: Balance Sheets, Income Statements, Cash Flow Statements, and Pro Forma Statements.

What will I be able to do after this module?

You will be able to identify which financial statements are used in forecasting and analyze key historical financial statement data.