Question

	2003	2004	2005	2006
Cash and Short Term Investments	51.421	58.054	60.651	72.122
Accounts Receivable	12.394	17.256	25.158	30.919
Inventory	4.350	5.398	7.358	8.714
Prepaid Expenses and Deferred Taxes	3.887	3.905	9.607	15.863
Current Assets	72.052	84.613	102.774	127.618
Property, Plant and Equipment	146.362	201.725	268.809	345.977
Goodwill and Other Assets	38.421	38.334	66.084	69.014
Total Assets	256.835	324.672	437.667	542.609
Accounts Payable	8.072	5.840	4.422	5.800
Acrued Expenses and Deferred Revenue	37.571	49.865	82.443	103.810
Current Liabilities	45.643	55.705	86.865	109.610
Deferred Rent and Other Liabilities	13.616	27.604	33.824	35.333
Total Liabilities	59.259	83.309	120.689	144.943
Equity	197.576	241.363	316.978	397.666
Total Liabilities and Equity	256.835	324.672	437.667	542.609

Develop a 5 year Financial Forecast

Answer 1

From the given data, i have developed below forecast from 2007 to 2011, for the purpose of the forecast following assumptions has been taken as per the past trend.

Assumptions:

1) As Accounts Receivable of the country was increasing at an average rate of 25%, we assume that Company's total Sale is on Credit basis so the Sales are increasing on an average rate of 25%.

2) Average Current Ratio of the company is around 1.15 so we will try to maintain similar Current Ratio.

3) If Sales is increasing by 25% than on contrary Inventory should also increase so the run rate for Inventory is 20% so same we have considered for future forecast.

4) As the Capacity is increasing so the Property plant will increase i.e. Fixed Assets as 10% p.a.

5) Accounts Payable will increase with the Cost of inventory as here we are assuming inventory mostly for Raw Materials.

6) Other Liablities and Other Assets will increase at a minimal rate of 5%.

So Know i will explain how the calculation is made, will start with AR:

Accounts Receivable has been increased by 25% month over month so in 2006 AR was 30.919

2007= 30.919 + (30.919 X 25%) =38.65

Same way we have increased Inventory by 20% and Prepaid expense and deferred tax by 10%.

Property and Plant increase by 10%

other Assets 5%

Increase Accounts Payable month over month by 20%.

Accrued Exp by 10% Same as per Prepaid Exp.

Equity : Here it is assumed that as business is growing in over 5 years so funds needs will increase to maintain operations and to increase the Scale so if 25% Sales are increasing than atleast 10% increase in equity will be a fair idea.

Workings:

	2003	2004	2005	2006	2007	2008	2009	2010	2011
Cash and Short Term Investments	51.421	58.054	60.651	72.122	76.09	79.32	81.44	81.97	80.29
Accounts Receivable	12.394	17.256	25.158	30.919	38.65	48.31	60.39	75.49	94.36
Inventory	4.35	5.398	7.358	8.714	10.46	12.55	15.06	18.07	21.68
Prepaid Expenses and Deferred Taxes	3.887	3.905	9.607	15.863	17.45	19.19	21.11	23.23	25.55
Current Assets	72.052	84.613	102.774	127.618	142.64	159.37	178.00	198.75	221.88
Property, Plant and Equipment	146.362	201.725	268.809	345.977	380.57	418.63	460.50	506.54	557.20
Goodwill and Other Assets	38.421	38.334	66.084	69.014	72.46	76.09	79.89	83.89	88.08
Total Assets	256.835	324.672	437.667	542.609	595.68	654.09	718.39	789.19	867.16
Accounts Payable	8.072	5.84	4.422	5.8	6.96	8.35	10.02	12.03	14.43
Acrued Expenses and Deferred Revenue	37.571	49.865	82.443	103.81	114.19	125.61	138.17	151.99	167.19
Current Liabilities	45.643	55.705	86.865	109.61	121.15	133.96	148.19	164.02	181.62
Deferred Rent and Other Liabilities	13.616	27.604	33.824	35.333	37.10	38.95	40.90	42.95	45.09
Total Liabilities	59.259	83.309	120.689	144.943	158.25	172.92	189.10	206.96	226.71
Equity	197.576	241.363	316.978	397.666	437.43	481.18	529.29	582.22	640.45
Total Liabilities and Equity	256.835	324.672	437.667	542.609	595.68	654.09	718.39	789.19	867.16
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Please let me know in case if you have any doubt in above calculations or if you want to understand the above Assumptions want any justification. You can also post your Query in the comments.