From the course: Financial Modeling and Forecasting Financial Statements

Projecting the financial future

From the course: Financial Modeling and Forecasting Financial Statements

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Projecting the financial future

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- Hi I'm Jim Stice. I'm a professor of accounting at Brigham Young University. This is my brother Kay. - I am also a professor of accounting at Brigham Young University. - In this course we provide an introduction to and practice with financial modeling and financial statement forecasting. - Many people mistakenly believe that financial accounting reports are simply dry, historical summaries of the past. - Now there's nothing wrong with history. A historical summary of a company's past performance allows you to evaluate management performance, especially if you compare that past performance to what was planned. - However, most financial statement users are not as interested in the past as they are in the future. - For example, when deciding whether to loan money to a company, a banker wants to know what the company's cash flows will be in the future. After all, it's out of future cash flows generated by the company that the loan will be repaid. - In a similar fashion, potential investors are interested in future profits, and future cash flows. When you buy a company, you're buying its future, not its past. - [Jim] Now, in this course, we will show you how to use the historical financial statements as a platform for forecasting a company's future. - [Kay] We will consider each of the important financial statement numbers, such as cost of goods sold, depreciation expense, and the levels of inventory and fixed assets. And we'll ask the question what will cause this number to change in the future. - [Jim] We will see the forecasting power of the simple account equation assets equal liabilities plus equity. - [Kay] We will work through some practice exercises in constructing forecasted financial statements. These are also called pro forma financial statements. - And we will illustrate the insights that financial statement forecasting provides by using our favorite teaching case, the near-death experience of Home Depot back in 1985. - Are you ready? - Let's learn about financial modeling and forecasting financial statements.

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