Projected financial statements are mainly used to analyze the financial performance of the business. It is widely used in the field of finance where businesses wish to avail loans from the banks or NBFCs. From projected financial statements, lenders can analyse the creditworthiness, future performance and growth of the business. The meaning of “Projected” here is different from provisional or estimated. Let us understand this in detail.
Line Items to be considered while preparing projected Profit & Loss Accounts and Balance Sheet
Projected P&L Statement
The following are the main accounts:
- Sales Revenue
- Cost of goods sold
- Gross Profit
- Sales, General and Administrative expenses
- Depreciation
- Interest cost
- Tax expenses
By including all the above main factors, one can derive the Net Profit in Projected Profit & Loss statement.
Projected Balance Sheet
The following are the main accounts:
- Assets
- Account receivable
- Inventory
- PPE (Property, Plant & Equipment
- Other current assets
- Long term assets such as investments, deposits etc.
- Liability
- Trade Payables
- Other current liability
- Long term debt (Loans, Debentures etc.)
- Equity
- Share capital
- Retained earnings
Difference between Projected, Estimated & Provision Financial Statement
Projected Financial Statements
Projected P&L and Balance sheet is prepared on the basis of projection i.e. for which period is not started.
Estimated Financial Statements
Estimated Balance Sheet is prepared for future Data (for which the period is started but not completed) on the basis of projection i.e. for the period which already started but not completed.
Example
Suppose, for CC limit extension or taking fresh loans, Bank demands financial statements of current year i.e. still not completed. In such a case, on projection (on the basis of past performance) we provide to bank an estimated financial statements.
Provisional Financial Statements
Provisional financial statements are unaudited in nature. It is prepared on the basis of actual or past data i.e. for the period which is already completed.
Example
Suppose the balance sheet is prepared for FY 2020-21 as on 31st March 2021, which is not yet finalized, but banks or financial institutions demand for the balance sheet, then we provide them with a provisional balance sheet.
FAQs
Projected financial statements incorporate current trends and expectations to arrive at a financial picture that management believes it can attain as of a future date. At a minimum, projected financial statements will show a summary-level income statement and balance sheet.
Unlike a past balance sheet that shows a business’s actual, historical financial positions, a projected balance sheet communicates expected changes in future asset investments, outstanding liabilities and equity financing.
@Aishwarya_Shah @Kaushal_Soni can you?
Hey @Sundaraiah_Kollipara,
You can read below articles for more insights about projected financial statements and drawing power calculations.
I hope it helps!