Balance sheet forecast
The purpose of balance sheet forecast is to obtain a continuous view on the balance sheet of the company that is as accurate as possible, including its different elements and development trends on a chosen period. Important key indicators for management include at least cash position, equity ratio, indebtedness and various turnovers (inventory, sales receivables and accounts payable).
The major part of the balance sheet forecast is generated automatically.
- Depreciations of fixed assets are calculated automatically, and the system can be used to simulate investments and their financing.
- The inventory, especially the total inventory, indicates how much company capital is committed to the stores. The amount of inventory may vary strongly between seasons, and could have a significant influence on balance, working capital etc. Revise EPM utilizes for automatic balance calculation mathematical models incorporating historical trends (turnover, seasonal variation etc.)
- Sales receivables and accounts payable are calculated automatically from profit and cash flow forecasts.
- Cash balance is obtained directly from cash flow forecast.
- The balance sheet total indicates the total amount of capital committed to the company: cash (assets), equity and debt (liabilities). Both the line of business and business model have a substantial effect on the balance sheet total. Large, traditional manufacturing companies are usually highly capital intensive. When calculating the company return on investment, the second component is usually turnover of capital. This is calculated by comparing balance sheet total to the company turnover.
- Equity ratio describes the solvency situation and existing reserves in the balance.
- The company financing can be set up in many alternative ways: equity and its different instruments (share capital, hybrid loan, convertible bond, subordinated loan) and debt. These and their effects on the company solvency, cash flow, liquidity etc. can be easily simulated by Revise EPM. There is a separate section for debt financing design and simulation, that calculates and amortizes the interest and repayments on finance for each debt and its useful life.
- Holiday pay, VAT and other equivalent debt is calculated automatically.