Question

What are the three basic steps to creating a set of projected financial statements? Why is this process not as simple as it sounds?

Answer 1

Projection required following steps -

1. Collection of all data - Gather all the possible data required for a particular product or a service.
   
2. Estimation - It is all about making assumption about the near future. Assumption must be reasonable and should not be exasperated. It should be based on the industry nature and economic environment.
   
3. Compile data and prepare the projected finanical statement - Better use bottom up approach in projecting the financial statement.

It looks a simple three step process however performing these steps is a difficult task. After collecting data making assumption about the the figures is a painful activity.