In simple model 1A, we're going to build an income statement and balance sheet for the forecast period What we've got provided to us already is some historical figures in the income statement From them we've built some ratios and statistics and they've helped us come up with our forecast assumptions into the future And then eventually we'll use them to come up with our forecast figures So to go through that again, that is your forecast process Number 1: historical figures, number 2: ratios, number 3: forecast assumptions and then 4: financial forecasts The one thing missing if we look to the historical period, is we can't see any subtotals So I'm going to put some subtotals in here, I'm going to sum up the revenues and costs to get net income I will do the same in the balance sheet, sum up total assets, sum up total liabilities and then sum up total liabilities and equity Fantastic! They're all working in. I want to make sure that that balances Total liabilities and equity minus total assets comes to zero, fantastic! Now I'm going to copy them to the right (so the historical figures are all filled in) And I'm actually going to copy them into period 1 as well I know those formulas are going to be consistent, so let's take them into period 1 Period 1 will be done In going through this model, I'm going to do period 1 in full Then I will copy all of period 1 to the right into period 2 and period 3. So let's start with period 1. For revenues, I look up to the assumption and it says it's going to 5% revenue growth So I'm going to take 1 plus the 5% to give me 105% Multiply that by last year's revenue and that gives me this year's revenue of 110.3 Similar for costs, I look up to the assumption and what does it say? It says costs as a percentage of revenue is 85% of revenues, gives me 93.7 Thus net income autocompletes The cash assumption is just giving to us (28.4) Inventories, go up to your assumption again. And it says it's going to be 13% of costs So I multiply the 13% by costs of 93.7 So my total assets are 40.5, I really hope that my total liabilities and equity come to 40.5 as well and I get a balanced balance sheet So long term debt, what's the assumption? It says long term change. Well there's going to be no change from the previous year, so I will add zero onto last year's 10 Debt hasn't changed The last one is equity and there's no specific assumption given to us for equity So I now need to ask myself, well what could go up and down? It could be share issuance or repayments but right at the top of the model it said there was going to be no share issuance or repayments So it's going to be retained earnings within equity, that's going to go up by net income So I'm going to take my net income from the income statement (16.5) I will add that onto last year's equity and that's the only reason it will have increased I cross my fingers, I hope the balance sheet is going to balance and it does, fantastic! So that is period 1 all done. I can now copy period 1 to the right That will then grab all of the assumptions from period 2, bring them into the period 2 forecast period And there are all of my figures for period 2 and 3 If I scroll down, again I can see that the balance sheet does indeed balance for that period