2. BALANCE SHEET Forecasting
Fixed assets
Now the important hypothesis to formulate is
the amount of money to invest each period.
This is possibly another parameter that you
want to make explicit in the model.
FAn+1 = FAn – Depreciationn+1 + Investmentn+1
Equity
Fixed Assets
Inventory
(or Stock)
Account
Receivables
Cash
Long-Term
Debt
Short-Term
Debt
Account
Payables
6. BALANCE SHEET Forecasting
Equity
The general rule will be that equity will
increase with retained earnings (net profit –
dividends). There could be extraordinary equity
operations, as share repurchases or new
emissions of shares.
Equityn+1 = Equityn + Net profitn+1 - Dividendsn+1
Equity
Fixed Assets
Inventory
(or Stock)
Account
Receivables
Cash
Long-Term
Debt
Short-Term
Debt
Account
Payables
7. BALANCE SHEET Forecasting
Long-term debt
Long-term debt maturity will be known by the
firm at the time of debt emission. There could
be new debt contracted during the period.
LTDn+1 = LTDn – Maturitiesn+1 + New Debtn+1
Equity
Fixed Assets
Inventory
(or Stock)
Account
Receivables
Cash
Long-Term
Debt
Short-Term
Debt
Account
Payables
8. BALANCE SHEET Forecasting
Short Term Debt
Use the amount of credit negotiated with the
bank.
You can also leave this figure at zero and
calculate it at the end of the forecasting as a
plug number to balance the balance sheet.
Equity
Fixed Assets
Inventory
(or Stock)
Account
Receivables
Cash
Long-Term
Debt
Short-Term
Debt
Account
Payables
10. BALANCE SHEET Forecasting
Balancing the balance sheet
As we have independently forecasted each
item on the balance sheet, not surprisingly
assets and liabilities will not match.
If there are more assets than funds to finance
them, we have a deficit i.e. we need more
funds, be it debt or equity.
If there are more funds than assets, there will
be excess cash.
Equity
Fixed Assets
Inventory
(or Stock)
Account
Receivables
Cash
Long-Term
Debt
Short-Term
Debt
Account
Payables
