Forecasting Interest Expense on the Income Statement

Overview


Prior Statements


Forecasted Revenue


The revenue will be assumed to grow at the average rate of growth over the prior periods. 


let sdata = st.sort(data, p=>p.date);
let growthRate = $list(sdata).map((p,i,data)=>{
                          if(i>0) return p.revenue/(data[i-1].revenue)
                       })
                      .filter(p=>p!== undefined)
                      .average();
				
let forecastedRevenue = sdata[sdata.length-1].revenue * growthRate;
Try it!


Cost of Goods Sold and SGA


The cost of goods sold selling, general and administrative expense is taken to be a fixed percentage of sales. In this example, we take this percentage as the average value of the prior statements.

Try it!

Reasearch and Development


Reasearch and Development is taken as a constant value.

Depreciation


Is taken as a fixed percentage of property plant and equipment.

Interest Expense


Interest Expense can be a tricky item, in particular if new debt is to be issued during the current accounting period. As a simple first example, interest expense is taken as a given interest rate times the debt balance from the balance sheet at the beginning of the period.

Income Tax


Income tax is the tax rate applied to the income before taxes. In this case, we take the tax rate to be 35%.

Sample Model


A simple implementation of modeling techniques above can be found in the following models:

script model spreadsheet model

Contents