OBJECTIVE

S
Forecast the revenues of the
business;
Forecast the costs to be
incurred;
Compute for profits; and;
Create the company’s five
(5) year projected financial
statements.
LESSO Forecast The Revenues Of
N The Business
1
 WHAT IS REVENUE?
Revenue is a result when sales exceed
the cost to produce goods or render the
services. Revenue is recognized when
earned, whether paid in cash or
changed to the account of the
customers.
Other terms related to revenue include
Sales and Service Income. Sales is used
especially when the nature of business is
merchandising or retailing, while Service
Income is used to record revenues earned
by rendering services.
The entrepreneur would want his/her
forecasting for his/her small business as
credible and as accurate as possible to avoid
complications in the future. In estimating
potential revenue for the business, factors such
as external and internal factors that can affect
the business must be considered.
These factors should serve as basis in forecasting
revenues of the business. These factors are:

 The economics condition of the country.

When the economy grows, its growth is experienced by the
consumers. Consumers are more likely to buy products and
services. The entrepreneur must be able to identify the overall
health of the economy in order to make informed estimates. A
healthy economy makes good business.
 The competing businesses or competitors.
Observe how your competitors are doing business. Since you
share the same market with them, information about the number
of products sold daily or the number of items they are carrying
will give you idea as to how much your competitors are selling.
This will give you a benchmark on how much products you
need to stock your business in order to cope with the customer
demand. This will also give you a better estimate as to market
share is available for you to exploit.
 Changes happening in the community.
Changes happening in the environment such as
customers demographic, lifestyle and buying
behavior give the entrepreneur a better
perspective about the market. The entrepreneur
should always be keen in adapting to these
changes in order to sustain the business.
The internal aspect of the business.
Another factor that affects
forecasting revenues in the
business itself. Plant capacity often
plays a very important role in
forecasting .
LESSO Forecast The Cost To Be
N Incurred
2
 Cost of Goods Sold / Cost of Sales
Refer to the amount of merchandise or goods sold
by the business for given period of time. This is
computed by adding the beginning inventory to the
Net Amount of Purchase to arrive with Cost of
Goods available for sale from which the
Merchandise Inventory, end is subtracted.
 Merchandise Inventory, beginning
Refer to goods and merchandise at the beginning of
operation of business or accounting period.

Purchases
Refer to the merchandise or goods purchased.
Example: Cost to buy each pair of Jeans or t-shirt
from a supplier.
 Merchandise Inventory, end
Refers to goods or merchandise left at
the end of operation or accounting
period.
 Freight-in
Refers to amount paid to transport goods
or merchandise purchased from the
supplier to the buyer. In this case, it is the
buyer who shoulders these cost.
 In a merchandising business such as Fit Mo’to Ready
Wear Online Selling Business, the formula to compute
for costs of goods sold is as follows:
Merchandise Inventory, beginning P [Link]
Add: Net Cost of Purchases [Link]
Freight-in [Link]
Cost of Goods Available for Sale P [Link]
Less: Merchandise Inventory, end [Link]
Cost of Goods Sold P [Link]
LESSO Compute For Profits; and
N
3
 Compute the Gross Profit
The gross profit rate on a product is computed as:
Net Sales XXXXXXX
Less: Cost of sales - XXXXXXX
Gross profit XXXXXXX
By using the formula, the gross of XYZ Trading in the year
2017
Net Sales P 734,000.00
Less: Cost of sales - 577,000.00
Gross profit 157,000.00
PROFIT is the gross income.
The amount of gross profit
provides information to the
entrepreneur about revenue
earned from sales.
The term cost refers to the purchase price of
the product including of the product including
the total outlay required in producing it.

The gross profit margin is computed as follows:

Gross profit rate =gross profit

net sales
 The gross profit rate measures
the percentage of gross profit
sales, indicating the profit that
business realizes from the sale of
the product.
The gross profit rate of XYZ Trading for the year computed
as follows:

Gross profit rate =46,900.00

734,000.00

Gross profit rate = 6.39%

 The gross profit rate measures
the percentage of gross profit
sales, indicating the profit that
business realizes from the sale of
the product.
 Operating Profit Margin Rate
The operating the profit margin is the excess of
gross profit from operating expenses.

Gross Profit XXXXX

Less: Operating Expenses XXXXX
Operating profit margin XXXXX
In case there are no financing charges like interest,
expenses, and income tax, the amount of the
operating profit margin is equal to the net income.

Gross Profit P 157,000.00

Less: Operating Expenses - 90,000.00
Operating profit margin P 67,000.00
This information that the business realized an income of P
67,000.00 during the year after deducting the cost and operating
expenses from the sales made.

Operating profit margin rate Operating Profit Margin

=
By applying Net Sales

Operating profit margin rate 67,000.00

=
734,000.00

Operating profit margin rate = 9.13%

 Net Profit Margin Rate
Operating profit margin XXXXXXX
Add: Interest Income XXXXXXX
Total
Less: Interest Expenses XXXXXXX
Income Tax XXXXXXX XXXXXXX
Net Profit Margin XXXXXXX
The Income statement is the net profit margin and the
third level in the revenue. The business is only given
consideration like interest expense and income tax.

Operating profit margin P 67,000.00

Less: Income Tax - 20,000.00
Net profit margin P 46,900.00
 Net profit margin rate =Net Profit
Net Sales

By applying the formula, the profit margin of XYZ

Net profit margin rate =46,900.00

734,000.00
Net profit margin rate = 6.39%
LESSON Create the Company’s Five (5) year
4 Projected Financial Statement
 Analyze the Liquidity Status of the Business
Liquidity Ratios
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets – Inventories) / Current liabilities
= (Cash and equivalents + Marketable securities +
Accounts receivable) / Current liabilities
The quick ratio measures its short-term
obligations with its most liquid assets and
therefore excludes inventories from its
current assets.
 Returns of Investment (ROI)
The Return of Investment (ROI) measures the
amount of net income per peso invested to the business.

The formula to compute ROI is as follows

Return of Investment = Net Income

Average Total Assets
 Table 1
Projected Five Year Balance sheet
Fit Mo’to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5
ASSET
Cash 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total Asset 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Liability - - - - -
Owners’ equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Total Liabilities and 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Owner’s Equity
 Table 1
Projected Five Year Income Statement
Fit Mo’to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 1,545,673.95 1,622,957.64 1,704,105.53 1,789,310.80 1,878,776.34

Cost 1,213,275.38 1,273,939.15 1,337,636.11 1,404,517.91 1474,743.81

Gross Profit 332,398.56 349,016.49 366,469.42 384,792.89 404,032.53

Before tax
QUESTION
S
1. Refer to goods and merchandise at the beginning of
operation of business or accounting period.

a. Merchandise Inventory, End

b. Merchandise Inventory, Beginning
c. Cost of good sold / cost sales
d. Purchases
2. Refer to the merchandise or goods purchased.

a. Merchandise Inventory, End

b. Revenue
c. Merchandise Inventory, Beginning
d. Purchases
3. Refer to the amount of merchandise or goods sold by
the business for given period of time.

a. Cost of good sold / cost sales

b. Merchandise Inventory, End
c. Merchandise Inventory, Beginning
d. Purchases
4. Is a result when sales exceed the cost to

produce goods or render the services.

a. Revenue
b. Merchandise Inventory, Beginning
c. Cost of good sold / cost sales
d. Purchases
5. Refers to goods or merchandise left at the end of
operation or accounting period.

a. Merchandise Inventory, End

b. Merchandise Inventory, Beginning
c. Cost of good sold / cost sales
d. Revenue
___________6. Measures its short-term
obligations with its most liquid assets and
therefore excludes inventories from its current
assets.
___________7. Is the gross income. The amount of
gross profit provides information to the entrepreneur
about revenue earned from sales

___________8. Is the excess of gross profit from

operating expenses.
___________9. Refers to amount paid to transport
goods or merchandise purchased from the supplier to
the buyer.

___________10. Measures the amount of net income

per peso invested to the business.
___________11 to 12. Other terms related to revenue.

___________13. Is used especially when the nature of

business is merchandising or retailing.

___________14. Is used to record revenues earned by

rendering services.
In estimating potential revenue for the
business, factors such as 15._________
and 16.__________ that can affect the
business must be considered.
17 to 20- Give the 4 factors that
should serve as a basis in forecasting
revenues of the business. ( In any
order)
ANSWERS