In order to generate automatic assumptions and perform a forecast, we apply statistical techniques to the company's historical data. If there are only two periods of historical data, we perform a simple trend analysis.

Example:

Using historical values for sales from 2003 and 2004, what is the predicted value for sales in 2005?12/15/200512/15/200412/15/2003Sales$8 $5 $3

Since there are only 2 periods of historical data, we perform a simple trend analysis:

Predicted % Change = ($5 - $3) / $3 = 66.66%

Predicted 2005 Sales = $5 * 1.66 = $8.3

If there are three or more periods of historical data, we use a combination of Ordinary Least Squares regression, Simple Exponential Smoothing, and Holt-Winters Exponential Smoothing models to perform the forecast. The following table lists each account with its corresponding method of prediction:

Account |
Prediction Algorithm |

Sales | Holt-Winters Exponential Smoothing |

Cost of Sales | Calculated |

Gross Profits | Calculated |

Gross Profit Margin | Exponential Smoothing |

Depreciation and Amortization | Percentage of Gross Fixed Assets |

Interest Expense | Calculated using Loan Information |

Other Overhead or S,G,&A Expense | Holt-Winters Exponential Smoothing |

Other Operating Expenses | Fixed (not predicted) |

Net Profit before Taxes | Calculated |

Adjusted Owner's Compensation | Most recent historical value |

Adjusted Net Profit before Taxes | Calculated |

Taxes Paid | Percentage of NPBT |

Other Income | Fixed (not predicted) |

Other Expenses | Fixed (not predicted) |

Net Income | Calculated |

Cash | Calculated (see below for more information) |

Accounts Receivable | Exponential Smoothing on Accounts Receivable Days |

Inventory | Exponential Smoothing on Inventory Days |

Other Current Assets | Holt-Winters Exponential Smoothing |

Total Current Assets | Calculated |

Gross Fixed Assets | Holt-Winters Exponential Smoothing |

Accumulated Depreciation | Most recent historical value + predicted Depreciation |

Net Fixed Assets | Calculated |

Other Assets | Holt-Winters Exponential Smoothing |

Total Assets | Calculated |

Accounts Payable | Exponential Smoothing on Accounts Payable Days |

Short Term Debt | Calculated using Loan Information |

Current Portion of Long Term Debt | Calculated using Loan Information |

Other Current Liabilities | Holt-Winters Exponential Smoothing |

Total Current Liabilities | Calculated |

Senior Debt | Calculated using Loan Information |

Subordinated Debt | Calculated using Loan Information |

Other Long Term Liabilities | Calculated using Loan Information |

Long Term Liabilities | Calculated |

Total Liabilities | Calculated |

Retained Earnings | Most recent historical value + predicted Net Income |

Total Equity | Calculated |