5:26 company spend in advance of growth eg retailer. Change in wc will be negative as a % of change in revenue Company get extra money as result of its growth Eg subscription business Change in WC will be positive as a % of revenue
Thanks for making this! I think the most confusing thing to do is the interest expense projection on the income statement. Also, days payables/receivables confuse me as well.
+Tina Ray The interest expense is actually easy, just multiply the rate by the beginning or average debt balance. Days Payable and Receivable are not that confusing if you understand it's really just a way of expressing AR as a % of Revenue or AP as a % of COGS or operating expenses.
thanks for sharing. I have two related questions to this video 1) I know that changes in balance sheet items should be shown in the cashflow statement. What if when looking at the historical values I have from annual reports, the changes in B/S isn't what the CFS shows. 2) what if I have other smaller B/S items that are company specific. What if I want to project those. How do I treat them?
1) Yes, this is a common issue. See the Change in WC video. The short answer is, ignore it and move on with the projections and for the Working Capital line items, focus on projecting the BS versions by linking them to the IS. 2) Make them percentages of revenue or expenses.
It is an important lecture that help me a lot. Thank you. May I request one thing that doesn't cost you nothing and will be more beneficial to me. Should you share the excel case study you've used in this video ?
Hey Brian! I learned so much from your videos. I had a specific video request bout a concept. I understand SE + Liabilties = Assets and a balance sheet must always balance. But when you project things into the future, or decide to keep things constant, or even zero them out, how do the future projections still balance? Because if you're projecting higher numbers for one thing on the liabilities side how is it countered on the assets side? It always remained a mystery to me.
+saifulisfree It balances because Cash and Equity act as balancers. Net Income flows into Equity, along with a few other items such as Dividends. And then Cash at the bottom of the Cash Flow Statement reflects *all* the changes to Balance Sheet items, since the changes are all shown somewhere on the CFS. So when cash flows into the top line on the Assets side, it automatically reflects everything that has changed on the Balance Sheet, which keeps it in balance.
Thank you for the video :) I have a few queries in mind. I am currently trying to project working capital in offline retail industry that is similar to Walmart (not this huge retailer) and i'm new to financial modelling. I should link AP to COGS? As the company owes the supplier for inventories. Another questions is that, for retail business their prepaid expenses are Rent for new outlets, insurance, and bulk order of supplies. Should i link these items to OPEX? As these items are needed for running the business daily.
while preparing normalized balance sheet, I took some non recurring items out of balance sheet and now my balance sheet for that particular year does not matches. it that okay for normalized balance sheet or does it still should match? by matching I mean A=L+E
+Jeff Singh Saini You should not be "normalizing" a Balance Sheet. You can consolidate it and simplify it, but you have to make sure that the Total Assets figure still equals what it was on the original Balance Sheet. So go back and look at your analysis again and make sure that you NEVER delete items. You can combine items, but you can't delete them.
+Mergers & Inquisitions / Breaking Into Wall Street thank you for the feedback. I have put back the item that was under current assets (it was asset held for sale so I though I should take it out as it is non-recurring item). So do we just "normalize" the income statement only? and leave balance sheet and cash flow as it is under the original financial statements?
