Projecting the balance sheet and profit and loss account

In order to project the financials, you will need to determine the growth drivers for the balance sheet and profit and loss account. Growth drivers are those parameters that best capture the movement in individual items over the years. The nature of the item and your expertise will determine which parameter you select as an appropriate growth driver. An example of a growth driver for turnover is the year-on-year growth or inflation.

You should know that the balance sheet growth drivers are not as straightforward as with the profit and loss. We will cover this in detail in Chapter 6, Understanding Project and Building Assumptions.

Once the historical growth drivers have been calculated, you will need to project them over the next 5 years. You will be guided by your notes on the discussions with management and, in particular, the section heads for their suggestions on how growth is likely to behave in the next 5 years....