Dynamic Cash Flow Projections » Income Statement Projections

The Purpose of Income Statement Projections

After you have finalized the entries for the assumptions page, then tackle the Income Statement projections. Of all the projections you do, this is one that receives the most attention. The I/S projection can serve as a budget as well as a tool for management to analyze various business scenarios.

Notice how we started with the Assumptions Worksheet. The information there feeds the Income Statement.

As you build your Dynamic Cash Flow Projection model, you should first build out the Income Statement projections, using flat monthly numbers for all of the items. 

Then go on to tackle building out your Balance Sheet and Cash Flow Statement projections. Make sure they balance and tie. Once you confirm that the Balance Sheet balances, then adjust the Income Statement for the effects of seasonality on your business. Avoid many headaches by getting the Balance Sheet and Cash Flow Statement projections working before you begin to adjust the Income Statement projections.

How Often To Do Income Statement Projections

The Projected Income Statement will need to be done prior to the beginning of the next fiscal period. You will need to do a lot of research before you can begin. Specifically, the assumptions page will need to be completed. Please see the “Document Assumptions” section for further details.

How To Produce The Income Statement Projection

Formulas for individual cells will need to be created and referenced to the appropriate cells bask in the Assumptions Worksheet. Use the same format as used in the actual financial statement so that you can drop in actual results on a monthly basis.

Remember, updating the spreadsheet with actual monthly results and updating the assumptions is what makes this a projection… Not a budget.

A quick way to approach building out your Income Statement projections is to use a historical ratio of each of the expense items to sales on an annual basis. A common-size Income Statement for the last several years will come in quite handy.