Forecast Help

Business Performance Analysis

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Help for the Business Performance Analysis Forecast Module.

The Forecast Module provides a Business Forecast and Sensitivity Analysis calculated using values from the Input Module.

This Help file outlines the relationships and calculations applied for each item. The ? after an item links directly to the items Help.

Calculation formula are provided for reference and to enable an in-depth understanding of the underlying calculations applied in the forecast. Analysis can be completed without reference to the formula applied.




The Forecast Module displays the business Revenue, Expense, Surplus and Return values calculated for each forecast year and provides step through Optimistic, Expected, Pessimistic Sensitivity Analysis.

The forecast provides a high level strategic budget overview, assists in the identification of business opportunities and risks, and provides a quantifiable framework for the development of business strategies and actions.




These are Module specific Controls. They appear as click-able links below the Analysis Menu.




This Control hides line items.

It is a toggle between Compress and Expand.




This Control shows line items.

It is a toggle between Expand and Compress.




This Control prints the current window.

You can also use the browsers Print and Print Preview functions to set print variables. To do this from your browser tool bar go File, Print or File, Print Preview.




This control steps through the Sensitivity settings Expected, Optimistic, Pessimistic and adjusts the Relative Indicators applied in the Forecast by the Sensitivity %. Expected provides no adjustment to Relative Indicators, Optimistic improves Relative Indicators by the Sensitivity %, and Pessimistic degrades Relative Indicators by the Sensitivity %. The adjusted Relative Indicators are applied in the Forecast Calculation.

If the item has positive relationship to the Relative Indicator

Relative Indicator Applied = Relative Indicator + (Relative Indicator * Sensitivity %)

If the item has an negative relationship to the Relative Indicator

Relative Indicator Applied = Relative Indicator - (Relative Indicator * Sensitivity %)




Revenue has a positive relationship to the Relative Indicators Market Strength and Business Market Position. As these indicators increase Revenue increases. Revenue has a negative relationship to the Relative Indicator Level of Competition. As this indicator increases Revenue decreases.

Revenue equals previous Revenue plus Revenue from changes in Market Strength plus Revenue from changes in Business Market Position less Revenue from changes in Level of Competition.

Current Year Revenue is provided as an Input.

The formula for the Revenue in following years is:

Annual Revenue =
Previous Annual Revenue
+ (Previous Annual Revenue * Market Strength Relative Indicator Applied)
+ (Previous Annual Revenue * Business Market Position Relative Indicator Applied)
- (Previous Annual Revenue * Level of Competition Relative Indicator Applied)


Input Values
Annual Revenue Current Year : 1 000 000.00

Market Strength Relative Indicator Year 1 : 2.00
Business Market Position Relative Indicator Year 1 : 3.00
Level of Competition Relative Indicator Year 1 : 2.00

Sensitivity % : 25.00

Calculations - Year 1 Expected - Sensitivity % = 0

Annual Revenue Current Year = 1 000 000.00

Annual Revenue has positive relationship to the Market Strength Relative Indicator therefore:
Market Strength Relative Indicator Applied =
Market Strength Relative Indicator
+ (Market Strength Relative Indicator * Sensitivity %)

Market Strength Relative Indicator Applied = 2.00 + (2.00 * 0/100)
Market Strength Relative Indicator Applied = 2.00

Annual Revenue has positive relationship to the Business Market Position Relative Indicator therefore:
Business Market Position Relative Indicator Applied =
Business Market Position Relative Indicator
+ (Business Market Position Relative Indicator * Sensitivity %)

Business Market Position Relative Indicator Applied = 3.00 + (3.00 * 0/100)
Business Market Position Relative Indicator Applied = 3.00

Annual Revenue has negative relationship to the Level of Competition Relative Indicator therefore:
Level of Competition Relative Indicator Applied =
Level of Competition Relative Indicator
- (Level of Competition Relative Indicator * Sensitivity %)

Level of Competition Relative Indicator Applied = 2.00 - (2.00 * 0/100)
Level of Competition Relative Indicator Applied = 2.00

resulting in:

Expected Annual Revenue Year 1 = 1 000 000.00 + (1 000 000.00 * 2.00/100) + (1 000 000.00 * 3.00/100) - (1 000 000.00 * 2.00/100)

Expected Annual Revenue Year 1 = 1 030 000

Calculations - Year 1 Optimistic - Sensitivity % = +25

Annual Revenue Current Year = 1 000 000.00

Annual Revenue has positive relationship to the Market Strength Relative Indicator therefore:
Market Strength Relative Indicator Applied =
Market Strength Relative Indicator
+ (Market Strength Relative Indicator * Sensitivity %)

Market Strength Relative Indicator Applied = 2.00 + (2.00 * 25/100)
Market Strength Relative Indicator Applied = 2.50

Annual Revenue has positive relationship to the Business Market Position Relative Indicator therefore:
Business Market Position Relative Indicator Applied =
Business Market Position Relative Indicator
+ (Business Market Position Relative Indicator * Sensitivity %)

Business Market Position Relative Indicator Applied = 3.00 + (3.00 * 25/100)
Business Market Position Relative Indicator Applied = 3.75

Annual Revenue has negative relationship to the Level of Competition Relative Indicator therefore:
Level of Competition Relative Indicator Applied =
Level of Competition Relative Indicator
- (Level of Competition Relative Indicator * Sensitivity %)

Level of Competition Relative Indicator Applied = 2.00 - (2.00 * 25/100)
Level of Competition Relative Indicator Applied = 1.50

resulting in:

Optimistic Annual Revenue Year 1 = 1 000 000.00 + (1 000 000.00 * 2.50/100) + (1 000 000.00 * 3.75/100) - (1 000 000.00 * 1.5/100)

Optimistic Annual Revenue Year 1 = 1 047 500

Calculations - Year 1 Pessimistic - Sensitivity % = -25

Annual Revenue Current Year = 1 000 000.00

Annual Revenue has positive relationship to the Market Strength Relative Indicator therefore:
Market Strength Relative Indicator Applied =
Market Strength Relative Indicator
+ (Market Strength Relative Indicator * Sensitivity %)

Market Strength Relative Indicator Applied = 2.00 + (2.00 * -25/100)
Market Strength Relative Indicator Applied = 1.5

Annual Revenue has positive relationship to the Business Market Position Relative Indicator therefore:
Business Market Position Relative Indicator Applied =
Business Market Position Relative Indicator
+ (Business Market Position Relative Indicator * Sensitivity %)

Business Market Position Relative Indicator Applied = 3.00 + (3.00 * -25/100)
Business Market Position Relative Indicator Applied = 2.25

Annual Revenue has negative relationship to the Level of Competition Relative Indicator therefore:
Level of Competition Relative Indicator Applied =
Level of Competition Relative Indicator
- (Level of Competition Relative Indicator * Sensitivity %)

Level of Competition Relative Indicator Applied = 2.00 - (2.00 * -25/100)
Level of Competition Relative Indicator Applied = 2.50

resulting in:

Pessimistic Annual Revenue Year 1 = 1 000 000.00 + (1 000 000.00 * 1.50/100) + (1 000 000.00 * 2.25/100) - (1 000 000.00 * 2.50/100)

Pessimistic Annual Revenue Year 1 = 1 012 500




Variable Expenses have a direct relationship to Revenue and a positive relationship with the associated Relative Indicator. As these increase the Variable Expense increases. Variable Expenses have a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the Variable Expense decreases.

Current Year Expenses are provided as an Input.

The general formula for a Variable Expense in following years is:

Variable Expense =
(
Previous Expense
+ (Previous Expense * Relative Indicator Applied)
- (Previous Expense * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Supplies is a Variable Expense and has a direct relationship to Revenue and a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the expense decreases.

Current Year Supplies Expense is provided as an Input.

The formula for Supplies Expense in following years is:

Supplies =
(
Previous Supplies
+ (Previous Supplies * Goods and Services Relative Indicator Applied)
- (Previous Supplies * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Wages is a Variable Expense and has a direct relationship to Revenue and a positive relationship to the Relative Indicator Salaries and Wages. As these increase the expense increases. It has a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the expense decreases.

Current Year Wages Expense is provided as an Input.

The formula for the Wages Expense in following years is:

Wages =
(
Previous Wages
+ (Previous Wages * Salaries and Wages Relative Indicator Applied)
- (Previous Wages * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Distribution is a Variable Expense and has a direct relationship to Revenue and a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the expense decreases.

Current Year Distribution Expense is provided as an Input.

The formula for Distribution Expense in following years is:

Distribution =
(
Previous Distribution
+ (Previous Distribution * Goods and Services Relative Indicator Applied)
- (Previous Distribution * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Marketing is a Variable Expense and has a direct relationship to Revenue and a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the expense decreases.

Current Year Marketing Expense is provided as an Input.

The formula for Marketing Expense in following years is:

Marketing =
(
Previous Marketing
+ (Previous Marketing * Goods and Services Relative Indicator Applied)
- (Previous Marketing * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Other Variable is a Variable Expense and has a direct relationship to Revenue and a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Variable Costs Efficiency. As this increases the expense decreases.

Current Year Other Variable Expense is provided as an Input.

The formula for Other Variable Expense in following years is:

Other Variable =
(
Previous Other Variable
+ (Previous Other Variable * Goods and Services Relative Indicator Applied)
- (Previous Other Variable * Variable Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue / Previous Annual Revenue)




Total Variable = sum of all Variable Expenses.




Gross Profit = Annual Revenue - Total Variable




Mark-Up % = (Annual Revenue / Total Variable) - 1




Fixed Expenses are often considered a constant expense, however they are still subject to increases in the underlying cost. For example if the business includes a manager and the managers salary increases then this Fixed Expense increases regardless of Revenue. Also large sustained revenue variations place pressure on Fixed Expenses and usually result in an increased Fixed Expense, this is accounted for using the Flow-on Relative Indicator.

Fixed Expenses have a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. They have a positive relationship to any associated Direct Relative Indicator. As these increase the Fixed Expense increases. Fixed Expenses have a negative relationship to the Relative Indicator Fixed Costs Efficiency. As this increases the Fixed Expense decreases.

Current Year Expenses are provided as an Input.

The general formula for a Fixed Expense in following years is:

Fixed Expense =
(
Previous Expense
+ (Previous Expense * Direct Relative Indicator Applied)
- (Previous Expense * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Location is a Fixed Expense and has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Fixed Costs Costs Efficiency. As this increases the expense decreases.

Current Year Location Expense is provided as an Input.

The formula for Location Expense in following years is:

Location Expense =
(
Previous Location
+ (Previous Location * Goods and Services Relative Indicator Applied)
- (Previous Location * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Salaries is a Fixed Expense and has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Salaries and Wages. As these increase the expense increases. It has a negative relationship to the Relative Indicator Fixed Costs Costs Efficiency. As this increases the expense decreases.

Current Year Salaries Expense is provided as an Input.

The formula for Salaries Expense in following years is:

Salaries Expense =
(
Previous Salaries
+ (Previous Salaries * Salaries and Wages Relative Indicator Applied)
- (Previous Salaries * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Administration is a Fixed Expense and has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Fixed Costs Costs Efficiency. As this increases the expense decreases.

Current Year Administration Expense is provided as an Input.

The formula for Administration Expense in following years is:

Administration Expense =
(
Previous Administration
+ (Previous Administration * Goods and Services Relative Indicator Applied)
- (Previous Administration * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Interest is a Fixed Expense and has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Interest Rates. As these increase the expense increases. It has a negative relationship to the Relative Indicator Fixed Costs Costs Efficiency. As this increases the expense decreases.

Current Year Interest Expense is provided as an Input.

The formula for Interest Expense in following years is:

Interest Expense =
(
Previous Interest
+ (Previous Interest * Goods and Services Relative Indicator Applied)
- (Previous Interest * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Other Fixed is a Fixed Expense and has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Goods and Services. As these increase the expense increases. It has a negative relationship to the Relative Indicator Fixed Costs Costs Efficiency. As this increases the expense decreases.

Current Year Other Fixed Expense is provided as an Input.

The formula for Other Fixed Expense in following years is:

Other Fixed Expense =
(
Previous Other Fixed
+ (Previous Other Fixed * Goods and Services Relative Indicator Applied)
- (Previous Other Fixed * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Total Fixed = sum of all Fixed Expenses.




Total Expenses = Total Variable + Total Fixed




Profit/Surplus reflects the before tax annual operating profit/loss of the business. It is calculated as the Annual Revenue less Total Expenses. It excludes asset re-investment and represents the day to day (short term) business performance.

Profit/Surplus = Annual Revenue - Total Expenses




A Depreciation Allowance is required for the long term maintenance of the business. If the Depreciation Allowance is not reinvested business performance and value will decrease. It is in effect a fixed expense and is subject to the same influences, Flow-on, Fixed Costs Efficiency and Goods and Services Relative Indicator.

Depreciation Allowance has a direct relationship to the Fixed Cost Flow-on Relative Indicator and the change in Revenue from the previous year. It has a positive relationship to the Relative Indicator Goods and Services. As these increase the allowance increases. It has a negative relationship to the Relative Indicator Fixed Costs Efficiency. As this increases the expense decreases.

Current Year Depreciation Allowance is:

Depreciation Allowance = Business Assets / Life of Assets

The formula for Depreciation Allowance in following years is:

Depreciation Allowance =
(
Previous Depreciation
+ (Previous Depreciation * Goods and Services Relative Indicator Applied)
- (Previous Depreciation * Fixed Costs Efficiency Relative Indicator Applied)
)
* (Current Annual Revenue - Previous Annual Revenue)
/ Previous Annual Revenue * Fixed Cost Flow-on Relative Indicator Applied




Owners Earning Power is only applicable for the Valuation Module. If the Valuation Module is not Activated Owners Earning Power is effectively 0.

This is the annual income the owner could earn if employed outside the business. It reflects the income given up by the owner to work in the business. This must be recouped through the business before there is any return on investment generated. It is not influenced by the performance of the business but does have a positive relationship to the Relative Salaries and Wages Relative Indicator.

Current Year Owners Earning Power is provided as an Input.

The formula for Owners Earning Power in following years is:

Owners Earning Power =
(
Previous Owners Earning Power
+ (Owners Earning Power * Salaries and Wages Relative Indicator)




Business Return reflects the before tax annual long term return of the business. It considers asset re-investment and any Owners external income forsaken. It is is calculated as the Profit/Surplus less the Depreciation Allowance and less Owners External Earning Power.

Business Return = Profit/Surplus - Depreciation - Owners Earning Power



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