1. FINA 321 Ch 9 – Text book Abdullah Al Shukaili
Prospective analysis
FINA 321
Ch 9 – Text book
Abdullah Al Shukaili

2. Learning objective Describe the importance of prospective analysis.
Explain the process of projecting the income statement, the balance sheet, and the statement of cash flows.

3. Purpose of prospective analysis
Prospective analysis is the final step in the financial statement analysis process
It can be undertaken only after the historical financial statements have been properly prepared to accurately reflect the economic performance of the company
Prospective analysis includes forecasting of the balance sheet, income statement and statement of cash flows

4. Its usefulness estimates of future financial statements
estimate current stock price
examine the viability of companies’ strategic plans
analyze whether a company will be able to generate sufficient cash flows from operations to finance expected growth or whether it will be required to seek debt or equity financing in the future
assess a company’s ability to meet its debt service requirements.

7. Steps for forecasting
Assumption start by looking to the previous years how much was the growth rate? Or did the company have a higher or a lower growth in previous years.
To know the growth rate apply the following formula { Current year – last year } / Last year