If I would like to forecast a target's future balacne sheet, how can I make it balance?
Or based on your experience, which item on the balance sheet is the most difficult to estimate?
Many thanks,
Balancing Balance Sheet Projections
First let's review the major elements of the balance sheet.
Knowing that Assets = Liabilities + Shareholder's Equity balancing the statement is a matter of making sure that changes to each side are reflected - IE if you purchased an asset the funds for it needed to come from somewhere - either cash or a through debt or equity issuance. Such purchases and subsequent funding decisions will be reflected on the statement of cash flows which is why it is critical that the SOCF and Income Statement must be linked properly in the Balance Sheet.
With this in mind, balance sheet should be driven by projections that are made on the income statement, statement of cash flows, and the debt waterfall.
User @BepBep12" further explained:
OP will still need to project line items on the BS i.e. anything in net working capital, accounts recievable, diluted shares outstanding, etc... but with respect to these items, I will freeze these values unless told otherwise by my deal team.What's been communicated to me with regards to doing quick checks in balancing the BS is making sure all the simple links between the statements are working properly i.e. your debt schedule is calculating proper amounts for amortization and the BS are reflecting the payments, your revolver is functioning properly drawing/or paying down depending CFs, cash balance is linked in from SOCF, and your Goodwill calculation is correct as well.
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Make sure it balances, or Hamilton Lin will either cry or laugh.
Debt plug bro
everything that changes on the balance sheet either comes through on the cash flow statement or the debt sweep so it should balance itself if you did it right
^^^Yeah if everything links together properly, it should balance. For example, changes on the balance sheet items will flow through in the cash flow statement and change the cash balance accordingly.
Debt plug means that changes in cash get deducted from the debt principal (not all models are built this way or make this assumption btw). This does not mean to just have the debt automatically change so your balance sheet balances, that would be wrong...
beginning projections with the balance sheet is one of the really old methods of modeling and died out ever since computing power came along that allowed for dynamic spreadsheets.
Typically you just look at how the assets grow and keep the percentage of total assets of each account flat. This is really useless now unless you are working with a commercial bank model since it'll actually makes more sense that way.
-Couchy I might be misinterpreting you, but I don't think he's driving his model from the BS and I'm not sure why he would anyway (Someone that knows help me here...?), I think the OP might just be confused with regards to why his BS won't balance or what he can do maybe to make it balance
-OP will still need to project line items on the BS i.e. anything in NWC A/R, DSO, DPO etc... but you're right with respect to these items at least, unless my VP or Associate tells me to I'm freezing the values
-What's been communicated to me with regards to doing quick checks in balancing the BS is making sure all the simple links between the statements are working properly i.e. your debt schedule is calculating proper amounts for amortization and the BS are reflecting the payments, your revolver is is functioning properly drawing/or paying down depending CFs, cash balance is linked in from SCF, and your Goodwill calculation is correct as well....not the be all end all list to remedy BS issues, but something I do quickly quickly to spot check my BS if somethings not working properly I tend to make silly mistakes and spend and unnecessary amount of time looking for them... ahh the joys of being an intern and learning....
I just tried to balance the forecasted bs by using cash as the plug. However, I don't know whether it is a usual practice in the real business world. Also, as we can use just cash flow statement and income statement to build up the DCF model. What's exactly the usage for us to forecast the balance sheet anyway?
Many thanks for all bros' helps.
is it possible for models to have 2 plugs? I tried for mine and it couldn't balance.
e.g. Company raises cash through debt (debt plug), reinvests additional cash in short-term securities(cash plug)
I had to input a circuit breaker and it still didnt balance.
Make the model too confusing to follow then stealth plug equity.
In seriousness, you need to forecast BS to make sure you avoid tripping debt covenants, don't run out of cash, etc. Also a good visual check to make sure something doesn't look stupid (ie. cash grows from 10% to 50% of assets in 5 years).
Balance Sheet Balancing Video (Originally Posted: 10/13/2008)
A few weeks ago there was a link to an online class, not sure if it was analyst exchange/Wall Street Prep, on balancing a balance sheet. Anyone know what happened to this link and if there are other class type video's available?
Thanks
https://anex.webex.com/anex/ldr.php?AT=pb&SP=MC&rID=17005117&rKey=0846A…
Or go to their website: http://www.theanalystexchange.com/
Does anyone have the link to the other sessions?
Thanks.
Balance Sheet Forecast Help (Originally Posted: 11/14/2012)
Hi,
I'm trying to forecast income statements for the next few years, and am having a hard time trying to balance the balance sheet. I suspect that the culprit may be the minority interest or retained earnings.
Are there any common error checks that I can run (other than plugs)?
If anybody could shed some light, it would be MUCH appreciated.
Probably just manually check each of your formulates on the balance sheet with hand calculations.
For example:
First thing's first - make sure your cash balance matches the beginning balance + the net cash flow listed on the cash flow statement. Calculate it by hand and then check your formula/result.
Then I would look at retained earnings as the beginning balance + net income - dividends.
You might have already done all that but it's real easy to make minor errors on these that mess everything up.
Follow up Q, the problem seems to be coming from the minority interest on the balance sheet, how exactly is that calculated?
Thanks again, pardon the ignorance
Projected Balance Sheet Not Balancing (Originally Posted: 12/09/2015)
Hello, I'm testing out my DCF and the projected BS figures are not balancing out. I've been going over it literally for hours and can't figure out the problem. Would somebody like to take a look at it for me? Just comment and I'll PM the file to you.
I'll take a look later today. Feel free to PM.
Definetley Cash flow. check depreciation.
There were some items missing in the CF. I added them to reflect the BS changes, although the balance still isn't 0.
Any other suggestions?
Forecasted balance sheet variance (Originally Posted: 07/02/2017)
Projected Balance sheet is currently off by the YoY change in the current maturities of long term debt. As the formula gets pulled right, the variance is the cumulative difference of current maturities of long term debt. I have current maturities on the BS, and then the same number with the sign switched on CF from financing. Any suggestions?
Bump
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