Revenue Modeling
When modeling out a company's revenue that is split in the 10-k between Products & Services, how would you show this in the financial model? Would you try and forecast your assumptions of the growth rates for each Products and Service separately, then create one Revenue bucket to show on the income statement? Or would you just forecast the growth rate of Revenue in its entirety and not focus on forecasting out revenue projections for products and services? If its the former, would you show both the Revenue for Products and services on your forecasted income statement or just show the total revenue?
It depends on the nature of the revenue. What is driving it? If the two are related products (i.e. the company offers a subscription software product and offers some IT services on top of that) then you can probably project the product revenue and assume the services as a % of product revenue if it's relatively consistent historically.
If the two are unrelated, like a business services company that also runs BPO consulting, then maybe project separately.
Also consider differences in growth, end-market focus, etc.
In terms of what you show, depends what you're doing this for. In my bank, I err on the side of more detail.
This is perfectly stated. Thanks Yasuo
If you have strong insight into the drivers of both products and services individually, it is best practice to model out both separately. This way, if you feel products for example is driving their business, you can have a more accurate estimae in terms of total revenue.
However, if you arent confident with either, then I'd recommend doing revenue alone. If you are doing guess-work on two separate things, your margin of error expands.
Thanks for the help. So for a company like Microsoft or Apple, how would you approach forecasting their products and services?
Aut voluptatem ut sequi ut fugiat. Porro reprehenderit eius rerum perferendis voluptate sapiente harum quia. Ut est occaecati et. Vel quod quo dolor vitae rerum illum reprehenderit. Est deserunt aut aut amet at rerum. Quas voluptatem ut iste similique.
Beatae ducimus mollitia facilis. Et quis debitis reprehenderit praesentium qui alias. Fugiat assumenda eligendi blanditiis necessitatibus iusto voluptatibus quis. Corporis veritatis voluptas facilis beatae.
Alias totam at dolor harum ea dignissimos quos incidunt. Quia enim nobis id eveniet nemo quis in. Suscipit autem aut est similique sit repellat. Consectetur molestiae eligendi fugit et. Error dolore quidem nemo dolor qui nesciunt omnis. Architecto distinctio doloremque aperiam voluptate.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...