Financial Modeling and Forecasting Financial Statements

Course details

Financial reports are not just summaries of the past—they also include predictions for the future. In fact, most financial institutions are more interested in future performance than historical trends. In this course, accounting professors Jim and Kay Stice explain how to create forecasted financial statements for your company. Learn how to use past data such as cost of goods sold, depreciation expenses, and levels of inventory, and understand what caused those numbers to fluctuate over time. Along the way, learn how to use the information as the basis for forecasting, applying a simple but powerful equation. With real-world case studies, this course guides you through connecting past performance with future projections, incorporating the latest in AI tools and Excel forecasting skills. By the end of this course, you’ll be prepared to apply reliable financial models that support decision-making for investments, lending, and business growth.

Learning objectives
Analyze the components of financial statements and their role in forecasting.
Create accurate financial forecasts by incorporating sales, expenses, and operating metrics.
Evaluate the impacts of different financing strategies on company performance, using plug figures and sensitivity analysis.
Organize data from historical financial statements to predict future cash flows and assess company sustainability.
Apply the principles of the accounting equation to ensure consistency and feasibility in financial planning.
Interpret how variations in operational parameters can affect cash flow and implement strategies for improvement.
Use AI and data analysis tools to enhance the accuracy of financial forecasts with granular and unstructured data.
Revise financial statement forecasts based on real-time data and changing economic conditions.
Explain the significance of operational and financial metrics in constructing and validating business forecasts.
Compare different forecasting scenarios, identifying potential risks and opportunities in business planning.

Concepts

Introduction

Projecting the financial future

Financial Forecasting for Strategic Decision-Making

Deduce the connection between past and future business performance
Analyze potential business with a financial forecast
Evaluate how banks use a financial forecast to make loans
Use financial forecasts to make investment decisions
Reflect new information in financial forecasts
Use AI effectively in financial statement forecasting
Excel - Growth extrapolation and loan candidate evaluation

Start with an Accurate Sales Forecast

IBM and the famously bad sales forecast
Combine historical trends with current plans to forecast
Incorporate seasonal patterns into your forecast
Use sensitivity analysis to minimize the costs of being wrong
Use AI to increase the reliability of data used in forecasting sales
Excel - Build a multifactor sales forecast

What Causes Financial Statement Numbers to Change

Home Depot in 1985 - Three weeks to live
Monitor financial statements to keep forecasts accurate
Incorporate long-term planning into forecasts
Revise financial forecasts based on financing options
Use AI to conduct sensitivity analysis
Excel - Forecast assets and sensitivity analysis

Construct a Forecasted Income Statement

Forecast interest and income taxes
Use AI to revise financial statement forecasts
Excel - Forecast net income and sensitivity analysis
The Gap - How change affects the forecasting process
Forecast sales-based expenses
Forecast fixed costs and variable costs

Construct a Forecasted Balance Sheet

Use the power of the accounting equation
Identify the missing numbers in forecasts
Assess the use of plugs - Cash, investments, and paid-in capital
Use the realistic but challenging plug - Loans
Use AI models to incorporate granular data
Excel - Assess different financing plug options

Construct a Forecasted Statement of Cash Flows

Home Depot - The importance of cash flow
Compute cash flows by analyzing other financial statements
Forecast operating cash flow
Forecast investing cash flow
Forecast financing cash flow
Use AI to incorporate qualitative data into forecasting
Excel - Fix Home Depot's operating cash flow

Conclusion

Create processes for dynamic modeling