Projections

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Sneha (Querist)
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06 May 2010 I want to prepare projections for next 3 years. What are the important steps to be considered while making projections. How the P&L & Balance sheet is tallied?

Rahul Gupta

Rahul Gupta (Expert)
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06 May 2010 Note some of th efollowing points while providing projections >

- Determine sales on the basis of the trends from the previous years.
- Estimate debtors on the basis of the experience of the debt collection and increase in credit sales.
- Estimate the increase or decrease in creditors on the basis of the credit period u can avail from the suppliers and level of purchases made.
- Stock should be estimated on the basis of the sales, inventory turnover, storage capacity and working capital investment.
- Estimate expenses based on the past experiences, any special expense to be incurred, commitments made etc.
- Estimate depreciation on the basis of past %. Also consider any additional asset planned to be purchased in future.
- Consider planning for any additional loan likely to be raised.
- Deduct the estimated EMIs , if any paying for any existing loans.
- Change fixed assets on the estimate of new purchase or sale of old asset.
- Consider capital introduction if likely to be taken in future.
- Profit % should reflect some what trend of the past years unless there are specific changes.
- Balance or any difference in BS, can be adjusted in cash and bank balance.