We're gonna build our income statement forecast for Hershey and for this model, we're gonna build five years of forecasts. Whenever we build our income statement, we build from top to bottom. So we start with revenues. Let's take a look at the assumption for revenues. And we can see here that revenue is expected to grow by 15.3% in 2022. So that means that revenue in '22 is expected to be 15.3% greater than in 2021. That's a lot of revenue growth, and you can see that the analyst has added a comment that this is linked to an acquisition which will boost revenues in 2022. So let's build my revenue formula.

So I'm gonna take one plus my revenue growth assumption, which gives us 115.3%. And then I multiply that by the prior year revenue figure, and that gives me forecast revenues of 10,343.9. Next, we're going to forecast operating costs. So again, let's take a look at the assumption for this item.

That tells me that operating costs are expected to be 77.7% of revenues. That's slightly higher than in the previous year, but again, the analyst has added a comment that this reflects cost inflation in 2022. So let's build our operating costs forecast, and that's gonna be my assumption multiplied by my revenue forecast, and that gives me operating costs of 8,037.2. Now, a couple of things to flag here. Firstly, you should always check your sign convention at this point. If you're building a model for a European company, costs will probably be shown as a negative number. In which case, you would need to include a minus sign in your formula or multiply your formula by minus one. Secondly, in practice, analysts don't usually forecast operating costs. They often forecast EBIT, using an EBIT margin assumption, so the operating costs can be backed out of this. You can see that our model shows forecast EBIT of 2,306.7.

We could have achieved the same results by assuming that the EBIT margin would be 22.3%, that's one minus the 77.7% of operating costs, and that would still give EBIT of 2,306.7. And that would allow us to calculate the operating costs of 8,037.2 as the difference between revenues and EBIT. The next line in my income statement is of course net interest expense, but we're going to leave this blank until the end of our model build. Note that even though we'll leave it blank, we'll continue forecasting the rest of the income statement in the knowledge that when we add interest expense later on, all of our subsequent subtitles will just update automatically. So the next line in our model is other expense, and this arises from Hershey's non-core business. If we look at our assumption for this number, we can see that this is forecast as an explicit amount.

So we're simply gonna take this assumption and pop it into our income statement.

When we do that, we can see that our earnings before tax is automatically calculated by our subtotal. Already, you might be thinking that the forecast earnings before tax is quite a bit higher than in the previous year, and definitely higher than you might expect based on the trend in EBIT. Why is this? Well, don't forget that we've left interest expense blank. When we include interest expense later on, our earnings before tax will adjust downwards. The final line to forecast is the tax expense. If we look at the assumption for tax, this is taxes as a percentage of earnings before tax, and that's just a smidgen higher than the 2021 tax rate. So let's forecast the tax expense, and I'm just gonna take the assumption from above and multiply that by earnings before tax, and that gives my tax expense of 393.6. Once we've done that, we are nearly ready to copy across our formulas to the right. We've already sense checked our numbers, but we do need to do a quick structure check and stress test. For the structure check, we'll review the formulas in our forecast to make sure they're pulling assumptions from the correct column. And if you look at my formulas on the right, you can see they're all pulling from column F, which is what we would expect. For the stress test, I can stress test my revenue growth. If I increase this to 30%, I would expect my profit to increase. So if I jump up, increase my revenue growth to 30%, and I scroll down, indeed, I can see that my net income has increased. Let's undo that change, so that we return to our original forecasts. I'm now confident that my year one numbers are correct, and I can now copy them to the right. So just select all of your year one forecasts, and then select over to column J and control R, and all of your forecast numbers will be populated out to 2026. And that's our income statement build complete.