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MF713 Rubric for Forecast financial statements
Objective
The goal of this assignment is to introduce you to the preparation of forecasted financial statements.
Forecasted financial statements are an important input into any valuation exercise. A forecast is as good
as the assumptions underlying the forecast. As a result, it is critical that your assumptions be sound and
that you consistently obey the laws of financial accounting. Internal consistency is key, and this refers to
the basis for forecasting out the financial statement items. For example, if you have assumed that cost of
goods sold is 30% of revenues and your forecast shows that cost of goods sold is between 20%-40% of
revenues for different years, then your forecast is not internally consistent as it does not conform to your
stated assumptions.
The following are the items that will be graded
Grading Points Level 1 (5 marks) Level 2 (10
marks)
Level 3 (15
marks)
Level 4 (20
marks)
Assumptions No assumptions
provided
Assumptions are
stated but no basis
provided for
assumptions
Assumptions are
stated and limited
basis for
assumptions are
provided. These
assumptions are
static
Assumptions are
stated, in depth
basis for the
assumptions are
provided
including
discussion of
economic
rationale and
model is dynamic
and can be
updated without
losing the internal
consistency of the
financial
statements.
Current Financial
analysis
No financial
analysis provided
Limited ratios are
calculated and
limited common
size analysis
performed but not
effectively
utilized in
forecasting
Ratios are
calculated and
common size
analysis
performed but not
consistently
applied in
forecasting
Ratios are
calculated and
common size
analysis
performed and
used as a basis for
forecasting items.
Excludes interest
and depreciation
and shows
worksheet for
these.
Understanding the
Income Statement
Income statement
presented but not
internally
consistent.
Revenue and
expense figures
Income statement
presented and
internally
consistent with
less than 6
inconsistencies
Income statement
presented and
internally
consistent with
less than 4
inconsistencies
Income statement
presented and
internally
consistent with
less than 2
inconsistencies.
2

not consistently
determined
Understanding the
Balance Sheet
Balance sheet is
not internally
consistent and
does not balance
Balance sheet is
not internally
consistent.
Balances but with
an arbitrary plug
Balance sheet is
internally
consistent but
there is an
arbitrary plug for
balancing or
income statement
does not tie into
the Retained
earnings
Balance sheet is
internally
consistent, and
plug is not
arbitrary. Income
statement ties into
the Retained
earnings
Understanding the
Cash flow
Statement
Cash flow
statement is not
internally
consistent and
does not tie into
the Balance sheet
Cash flow
statement is not
internally
consistent (> 6
inconsistencies)
but ties into the
balance sheet
based on an
arbitrarily
determined plug
Cash flow
statement is
internally
consistent but
fewer than 4
inconsistencies
leading to an
arbitrarily
determined plug.
Cash flow
statement is
internally
consistent (<2
inconsistencies)
and ties into the
balance sheet
without an
arbitrary plug
Working capital
and Free cash
flow estimation
No calculation of
working capital
and free cash flow
is performed
Working capital
calculation
attempted but
incorrect. Free
cash flow
calculation
attempted but
incorrect.
One or the other
of working capital
or free cash flow
is correct but the
other is incorrect.
Student provides
some explanation
of inputs and steps
to such calculation
Both calculations
are correct.
Student provides
detailed
explanation of
inputs and steps to
performing the
calculations.
Presentation Very limited work
done. No dynamic
links.
Spreadsheets and
inputs are not
linked
Some links in the
documents but
majority of the
numbers are hard-
coded.
The forecast is
dynamic and
mostly flows from
the inputs all the
way to the cash
flow estimation.
Majority of the
sheets are linked
but there are a few
circular
references.
The forecast is
dynamic, flowing
from the inputs all
the way to the free
cash flow
estimation. All
sheets are linked
and there are no
circular
references.

1. Assumptions are clearly stated and consistently applied
a. Growth Rate of sales specified based on some analysis of the company (20 marks)
b. Common size analysis calculated and used as a basis for items in both the balance sheet
and income statement (20 marks)
c. Income statement is presented and is internally consistent with growth expectations (20
marks)
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d. Balance sheet balances and is internally consistent with growth expectations (20 marks)
e. Cashflow statement ties into the cash balance on the balance sheet and is internally
consistent (20 marks)
2. Some items that may lead to a loss of marks are as follows:
a. There is a lump sum unexplained balancing figure ( - 5 marks)
b. Balance sheet does not balance (- 5 marks)
c. Cash flow statement does not tie into the balance sheet
d. Model is static and not dynamic. For example, I cannot change the rate of depreciation or
the interest rate on long term debt (if applicable) (-5 marks)


































































































































































































































































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