2.2·6 min read
Projecting the Income Statement
Forecast each line from a driver - growth, units times price, or a margin - rather than a blind guess.
By the end you can
- ✓Project revenue and costs from drivers
- ✓Keep margins grounded in history
- Revenue: grow off last year, or build bottom-up as units x price.
- COGS / gross margin: usually a stable % of revenue; hold the historical margin unless something changes.
- Operating expenses: often a % of revenue, sometimes fixed plus variable.
- Interest: from the debt balance x the rate (this links to the later).
- Taxes: pre-tax income x the tax rate.
Driver-based, not hard-coded
Every forecast line should trace to an assumption you can defend and flex. A model where you can change 'revenue growth' in one cell and watch the statements respond is worth ten models full of typed-in numbers.
Check yourself
What's the cleanest way to project COGS in a simple model?