In calculating the forecast figures for the bottom half of our income statements, it's very tempting to start with the interest expense and interest income. However, these are circular calculations. They're gonna be iterative. We want to leave them until the end of the model. So we'll go and start with non-recurring items (indistinct). Let's go up to assumptions and see what we find. And my non-recurring items amount is zero. Now, you might think, hang on, we've got non-recurring items in the prior years. How come it's suddenly become zero? Well, by its very nature, non-recurring items are very difficult to forecast. They don't recur. So the best we can do is often just to assume a zero figure.

My earnings before tax, already calculated. I copied my subtotal from the left to the right.

Now, my income tax, I have the choice of two tax rates. I've got an effective tax rate or a marginal tax rate. If we're taxing just a very small amount of profit, a marginal amount of profit, I would use the marginal tax rate. But if I'm taxing all of my profits, I want to use a more average tax rate, and the effective tax rate is exactly that. It's the average tax rate. So I'm going to take that 18.5% negative multiplied by my earnings before tax and I get the income tax expense. That's now calculated the earnings from continuing operations. I want to add in any earnings of the discontinued operations. In our assumptions, we can see it's zero.

That now gets me down to my recurring net income calculation. What I want to do here is I want to take the earnings from continuing operations, but then I want to kind of get rid of the non-recurring items that we've got here. It's gonna be much easier to explain this if I put a dummy number in here. I'm gonna put in a negative 10, but I'll remember to take it out later. So my recurring net income starts off with earnings from continuing operations. But then I say, what if the non-recurring items hadn't happened? At the moment, it's a negative 10, so that's a cost. We're now going to pretend that that cost did not happen. We need to put our profits back up. So to get rid of that negative 10, I'm going to have to subtract the negative, and the two negatives will make a plus and that will add it back. Great, my profits will go up by 10. However, if my profits go up by 10, I should be taxed on that 10. So I now need to tax that. And let's imagine that the marginal tax rate is 30%. Well, that would mean my profits don't go up by 10. They'd go up by seven. So how am I gonna calculate that? I'm gonna take that 10 and I'm going to multiply it by one minus the marginal tax rate. Now, that marginal tax rate here is already given as a negative, so I need to actually plus that negative marginal tax rate. Let's go find that in the assumptions.

There it is. Close the brackets. And I can now see that my net income has gone up from 17,730.8 to 17,737.3.

So it's gone up by 6.5 because we had a marginal tax rate at 35%. Before I forget, let's get rid of that negative 10 non-recurring items. Otherwise, our model is going to be wrong.

Fantastic. We've just got a few items to do at the bottom now. I'm gonna start with dividends per share. And our assumption here is a growth assumption. So I'm going to take equals one plus, grab that dividend growth assumption of 1%, close the brackets, multiply by last year and that will add 1% onto last year's dividends.

Now, basic WASO and diluted WASO. WASO is your weighted average shares outstanding or just the number of shares a company has. The basic WASO was 688.3, and my diluted WASO, which includes the effects of options, is 748.7. Now that I've got the diluted WASO or diluted number of shares, I can calculate my recurring diluted EPS. So recurring net income, divide that by the diluted WASO or diluted number of shares, gets me 23.69. That's the bottom half of the income statement done.