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    Prospective Analysis

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    charlie simo
    Prospective analysis involves forecasting a company's future financial performance through projected financial statements. This helps with management assessment, evaluating strategic plans, and assessing solvency by allowing creditors to evaluate a company's ability to meet debt obligations. For this assignment, the document focuses on projecting a company's income statement by forecasting items like sales growth, gross profit rate, operating expenses, depreciation, interest, and tax expenses based on historical rates and trends. It provides the income statements for 2013 and 2014 for Nestle as an example to demonstrate the projection calculations.

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    Prospective Analysis

    Uploaded by

    charlie simo
    1K views3 pages
    Prospective analysis involves forecasting a company's future financial performance through projected financial statements. This helps with management assessment, evaluating strategic plans, and assessing solvency by allowing creditors to evaluate a company's ability to meet debt obligations. For this assignment, the document focuses on projecting a company's income statement by forecasting items like sales growth, gross profit rate, operating expenses, depreciation, interest, and tax expenses based on historical rates and trends. It provides the income statements for 2013 and 2014 for Nestle as an example to demonstrate the projection calculations.

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    FINANCIAL STATEMENT ANALYSIS

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    Prospective analysis involves forecasting a company's future financial performance through projected financial statements. This helps with management assessment, evaluating strategic plans, and assessing solvency by allowing creditors to evaluate a company's ability to meet debt obligations. For this assignment, the document focuses on projecting a company's income statement by forecasting items like sales growth, gross profit rate, operating expenses, depreciation, interest, and tax expenses based on historical rates and trends. It provides the income statements for 2013 and 2014 for Nestle as an example to demonstrate the projection calculations.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views3 pages

    Prospective Analysis

    Uploaded by

    charlie simo
    Prospective analysis involves forecasting a company's future financial performance through projected financial statements. This helps with management assessment, evaluating strategic plans, and assessing solvency by allowing creditors to evaluate a company's ability to meet debt obligations. For this assignment, the document focuses on projecting a company's income statement by forecasting items like sales growth, gross profit rate, operating expenses, depreciation, interest, and tax expenses based on historical rates and trends. It provides the income statements for 2013 and 2014 for Nestle as an example to demonstrate the projection calculations.

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    PROSPECTIVE ANALYSIS

    Prospective analysis is important for security valuation, management assessment and


    assessment of solvency. For management assessment, the prospective analysis will help to
    forecast the financial performance examine the viability of company strategic plan. It is also
    useful in the scope of assessment of solvency as it help creditor to assess a companys ability
    to meet debt, services, requirement, both short term and long-term. Projected Financial
    Statements gives us an indication about the impact of certain action like going in for
    expansion; mergers or acquisition; valuable changes in company policies etc. on the future
    financial statements. It is an important component of building up to a successful plan for the
    future. We can have projection for balance sheet, income statement and statement of cash
    flow. For this assignment, we choose to do the projection for income statement as it is the
    indicator of the company future performance.
    In order to perform the projection for income statements we need to start with the :
    1) Sales Growth
    This growth rate projection is done based on certain macro and micro economic
    factors like PEST analysis; industry analysis; company-wide analysis. Hence, having
    considered all these factors one may safely arrive at the projected revenue by
    multiplying the revenue growth with the most current period revenue generated.
    2) Gross Profit Rate
    Project the next years gross profit using the most recent year gross profit rate
    derived from subtracting the COGS from the current year sales and expressed as a
    percentage of the current sales. This rate is then multiplied with the projected sales
    figure to arrive at future gross profit.
    3) COGS
    We can easily calculate the projected COGS for the company as we get the gross
    profit figure. We just minus sales figure with the gross profit to get COGS.

    4) Operating Expenses
    This could also be easily expresses as a percentage of current sales. Once, we get
    the operating expenses by sales rate, and then we can straight away multiply this rate
    with the projected sales rate in order to get the projected operating expenses.
    5) Depreciation Expenses
    This expense can very well be projected by finding out the historical depreciation
    rate as a percentage of the prior period Gross PPE. That percentage is further
    multiplied with the current year sales figure in order to arrive at the projected
    depreciation expense in the next year.
    6) Interest Expense
    Interest expense is derived by diving the current years interest expense by the
    previous year interest-bearing debt outstanding. Having got this rate, it is multiplied
    with the current years rate in order to arrive at the projected Interest Expense for the
    current year.
    7) Income Tax Expense
    This is calculated by multiplying the projected income before tax with the tax-rate
    implied from the current years tax given as a percentage of current years income
    before tax.

    Here is the income statement of both companies (Nestle & HupSeng) that we had
    chosen and the calculation of the item (listed above):
    Income Statement of NESTLE For The Year 2013 & 2014

    Sales
    Cost of Goods Sold [COGS]
    Gross Profit
    Selling, General, and Admin Expense

    NESTLE 2013

    NESTLE 2014

    (RM)

    (RM)

    551,075,000

    551,375,000

    551,075,000

    551,375,000

    1,760,000

    2,717,000

    Depreciation and Amortization Expense


    Interest Expense
    Income before Tax
    Income Tax Expense
    Income (loss) from extraordinary item
    Net income

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