The purpose of the following memo is to help you with the coming financial analysis in your business planning process.

The spirit of the financial analysis is budgeting. It will convince your stakeholders how are you going to get your cash, how are you going to acquire necessary assets to operate, and how are you going to distribute your products and services and finally generate your revenue.

The origin of your financial analysis is sales forecasting. Based on current demand, you may predict the demand in the near future (1 to 3 years). This is the foundation of your further analysis. And it should be objective and reliable. Needless to say, you'd better have solid evidence for your reasoning.

Using historical financial states, e.g. income statements, balance sheets and cash flow statements to build your financial model. The sequence is critical, otherwise, you won't get your projected cash flow statements.

The projected cash flow statements are the influential product of your analysis. Your potential investors, lenders or executives may be interested in reviewing it.

You can derive your financial ratios based on your projected financial statements, such as: ROI, ROE, ROA, EVA, fixed assets turnover, assets turnover, current ratio, quick ratio, NPV, IRR, payback period etc.

In summary, sales forecasting is the foundation of your coming analysis. Financial statement projection is a bridge between your current situation and your splendid future. The final financial ratios may deliver straightforward indexes for your business performance.

I will make myself available to you if you have further questions in the upcoming effort.  

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