We have already taken care of the inventories.
We will create a schedule for gross block, similar to the liabilities side, and address Cash and Bank balance in the current assets extensively in the cash flow statement.
Let us assume the remaining items on the asset side, and I’ll quickly explain our approach before we head over to excel.
I will look at sundry debtors as a proportion of Gross block; however, there is an option of converting to days and back.
This line item is linked to the organisation’s working capital, and so can be seen as a ratio of net sales.
The figure for Year 1 is minuscule and omitted in the subsequent years, hence it can be disregarded.
Capital work in progress – As a percentage of net sales
Investments – As a percentage of Gross block
Having worked out the historical percentages, I can then estimate the rolling average for the years ahead. From what I mentioned before, it is practicable to adjust the denominator depending on your analysis of the company’s financial records. Assumptions in financial modelling are derived from creative judgement – you are welcome to try something different as long as it isn’t too exaggerative.
I’ll go ahead and implement what I’ve discussed into the excel sheet and post a sequence of screenshots. With any luck, they’ll make everything clear.
I’ve worked on the assumption sheet, putting the line items in the same arrangement as they are on the balance sheet. I’m starting my calculations with Year 2 to keep them consistent with the other assumptions.
I’ve identified the Year 2 percentages and highlighted the loans, advances and deposits compared to net sales. You can view the equation bar and F16 cell, both of which I’ve featured in order to emphasise the P&L line item in the denominator.
I trust you’ll find this a simple, achievable goal. If you experience any trouble with carrying out this task, feel free to leave a comment.
For the following steps, I will move the rows to the right until year 5. Then, starting with year 6, I’ll take the averages.
I’ve emphasized the average calculation to make it easier for you to understand. Instead of averaging out the figures of Y6 to Y10 for the last entry on balance sheet, Investment as a percentage of Gross Block, I will set it as a fixed value at 3.5%.
Why not opt for an average as with the other elements? Why settle on 3.5%? Could 4% or 3% be better? All these queries are legitimate.
The number fluctuates from 3% to 11%, which is not ideal. To ensure consistency, I would prefer it to remain at a steady 3.5%.
Financial models bring a lot of convenience; it means I don’t have to commit to one figure from the start. I can adjust this number according to what I believe is most sensible, so there’s no need for pressure on this particular parameter – 3.5% it is!
This completes the balance sheet side of assumptions. The remaining items will be addressed using schedules.
Now, let’s proceed to the P&L assumptions; this should be straightforward.
*All subscription pricing plans mentioned across the website are exclusive of 18% GST
By signing up, you agree to receive transactional messages on WhatsApp. You may also receive a call from a BP Wealth representative to help you with the account opening process
Disclosures and Disclaimer: Investment in securities markets are subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by BP Equities Pvt. Ltd. Investors should consult their investment advisor before making any investment decision. BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), IN-DP-CDSL-183-2002 (CDSL), INH000000974 (Research Analyst), CIN: U45200MH1994PTC081564. Please ensure you carefully read the Risk Disclosure Document as prescribed by SEBI | ICF
Attention Investors
Issued in the interest of Investors
Communications: When You use the Website or send emails or other data, information or communication to us, You agree and understand that You are communicating with Us through electronic records and You consent to receive communications via electronic records from Us periodically and as and when required. We may communicate with you by email or by such other mode of communication, electronic or otherwise.
Investor Alert:
BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), INZ000030431 (MCX/NCDEX), IN-DP-CDSL-183-2002 (CDSL),
INH000000974 (Research Analyst) CIN: U45200MH1994PTC081564
BP Comtrade Pvt Ltd – SEBI Regn No: INZ000030431 CIN: U45200MH1994PTC081564
For complaints, send email on investor@bpwealth.com
You’ll be directed to your subscription plan
