How do I project interest income when building an integrated financial statement?
I have two years of historical data & the company has been debt at $20,000 that is being serviced at 10%p.a. This means $2,000 interest exp per year.
But I'm unable to figure out where the interest income in the Income Statement is coming from. The question does not provide an interest rate for this income nor the source. The value for interest income in year 2 drops 77% from year 1.
My hunch is that it has something to do with the cash balance. so I've calculated the 'assumed cash int rate' - interest exp / [(opening cash bal + closing cash bal)/2]. Then used this for forecasting. Is it correct?
Comes from your cash balance on the balance sheet (average your beginning and ending balance for the period). Assume 1 or 2 % if not given to you.
You could also look at the average cash balance from your historicals and see what the implied interest rate is on that, if consistent for both years, use that for projecting.
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