# How to Calculate Financial Projections

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Anyone who can predict the future can get rich off of the stock market. This is why investment analysts spend so much time trying to develop financial statement projections. The goal is to use the projections in order to better forecast earnings. However, the forecast is only as good as the projection -- garbage in garbage out. One of the most commonly used projection methods is referred to as the percent of sales and percent of assets method.

Obtain the annual report for the current year. For this example you will be forecasting one year of the income statement and balance sheet based on current year sales and assets. You can obtain the annual report by contacting the Investor Relations department or downloading from the company website.

Recreate the current year of the income statement and the balance sheet on a spreadsheet. The Year 1 forecast is adjacent to the current year.

Divide every line item on the income statement by sales and every line item on the balance sheet by total assets. The answer will give you a decimal which you can convert into a percentage by multiplying by 100. For instance, if liabilities are \$50,000 and total assets are \$100,000, then liabilities are 50 percent of assets.

Forecast sales and total assets for one year. If sales are \$10,000 and you expect them to grow by 5 percent next year, then sales can be calculated by multiplying \$10,000 by 1.05. Year 1 of the forecast can expect \$10,500 in sales. Do the same for total assets.

Multiply the percentage in each line item by sales and total assets forecast in both the income statement and the balance sheet. For instance, if Year 1 sales are forecast to be \$10,500 and gross profit represents 80 percent of sales or \$8,400.

Customize the projection with your own assumptions. The percent of sales or assets projection provides a boilerplate projection, however, it is up to each analyst to customize the projection with their own knowledge about company operations. For instance, if the company plans on introducing a net product into the market, it may increase costs. Be sure to include this in your projection and make notes for all changes.

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