Projected Balance Sheet: Comprehensive Guide

A projected balance sheet is important for any business for forecasting the assets and liabilities of the company.

It is used by many individuals, including banks for loan approval, internal teams for three-year forecasts, and investors to find profitable companies.

In this article, I included everything related to the projected balance sheet, including what it is, how to prepare it, an Excel format, and examples too.

What is a projected balance sheet

A projected balance sheet forecasts the company’s balance sheet, showing the future version of the company’s assets and liabilities.

A projected balance sheet is created by the management team to find out how the balance sheet will look like in the near future. It includes assets, liabilities, and shareholders’ equity which the company will possibly have in the future.

Before diving into a deeper understanding, you should have an idea regarding the basics.

Companies have three financial statements to show their financial position. These are:

Three financial reports: Income statement, cash flow statement and balance sheet

When you create a forecasting balance sheet, you also need to first prepare a projected income statement, because the balance sheet needs some figures and accounts which can only be found in the income statement.

Projected balance sheet Format

A forecasting balance sheet looks the same as a normal balance sheet. It contains three main parts: assets, liabilities, and shareholders’ equity.

Assets: Assets are things which the company owns. It includes short-term and long-term assets. Cash in hand, accounts receivable, property, plant, and equipment are categories in this section.

When professionals prepare the projected balance sheet, their main focus should be on short-term assets like accounts receivable and cash because it changes year to year, whereas long-term assets like property remain the same for many years.

Liabilities: Liabilities are things which the company owes. It also includes short-term and long-term liabilities. Bank loans, accounts payable, interest payments, and debt are categories in this section.

Similarly, with assets, professionals have a more focused approach on short-term liabilities like loan repayments of the current year, whereas long-term debt remains the same for many years because it’s approved for a few years, like 3 or 5 years.

Shareholders’ equity: Shareholders’ equity shows how much is left for company owners after subtracting liabilities from the company’s assets. It shows the equity of the company’s stock.

Balance sheet rule, Assets = Liabilities + Shareholders' Equity

It includes issued stock and retained earnings. However, it also remains the same from year to year, and if the company has any intentions to issue stock, it will be addressed in this section during the preparation of the projected balance sheet.

How to Create Projected Balance Sheet

Creating a projected balance sheet is similar to creating traditional financial statements. You can create the sheet manually or by using accounting software. To create a projected balance sheet, follow these steps:

Step 1: Find the Template

Your first task is to set the projected balance sheet format. If you are doing it manually, you will need an Excel template.

Determine how many years of forecasting professionals want to prepare. It can be a 3-year projected balance sheet or maybe 5 years.

Here is a 5-year optimised template for creating a balance sheet. Download it:

Step 2: Gather Company Data

Gather at least 2 years of past data. It is not only helpful but necessary to forecast the financial statement. The more years of data you have, the better, as trending year-to-year data will help professionals estimate future figures more accurately.

Step 3: Calculate the Balance Sheet

Now, after setting up all previous years’ data in Excel format, calculate and predict the next year’s figures. Each account is calculated using its methodology.

Accounts receivable and payable are calculated using outstanding days, whereas working capital is calculated using closing balances.

If you are using any accounting software, it will be easier. However, if you are doing it manually, you will need to calculate each item using its methodology. 

Let’s proceed to the next section.

Calculate projected Balance Sheet

After creating the projected balance sheet, it’s time to calculate the projected balance sheet using line items formula and its methodology.

Due to the balance sheet containing a variety of items, it’s important to check every account item to understand how it is calculated.

By using these formulas and information, it becomes easier and more accurate to figure out the forecasted balance sheet.

Working Capital

Working capital includes current assets and current liabilities items which are more related to the company’s operating activities cycle. Examples include inventory, accounts payable, and accounts receivable.

These are calculated by these formulas:

Accounts Receivable: The amount of money which customers will pay the company for items bought on credit. The formula for calculating accounts receivable is:

\text{Accounts Receivable} = \frac{\text{Total Credit Sales} \times \text{Number of Days for Receivables}}{365}

Accounts Payable: amount of money that a company owes to its suppliers for goods or services purchased on credit during a specific period.

\text{Accounts Payable} = \frac{\text{Total Purchases} \times \text{Number of Days for Payables}}{365}

Average Inventory: Inventory grows with sales and time. It is the raw material used for creating products and finished products ready to sell.

\text{Cost of Goods Sold} \times \frac{\text{Inventory Days}}{365} = \text{Average Inventory}


Long Term Assets

Long-term or referred to as fixed assets mainly include PPE (Property, Plant, and Equipment) and intangible assets. Fixed assets like plant, property, and equipment are calculated differently as they are accounted  with depreciation and amortisation.

So during the projection of the balance sheet, use a depreciation schedule for each line item. Here are formulas for these types of assets:

Closing balance = Opening Balance + Capital Expenditures – Depreciation Expense

On the other hand, intangible assets like trademarks, patents, and copyrights are included. They grow with company revenue. The more revenue, the more their value. So it is better to include these assets in the balance sheet.

Long Term Debt

Long-term debt is also calculated differently as it includes interest expense and repayments. To calculate long-term debt, subtract the opening balance from the closing balance and then add repayments while subtracting interest expense.

Closing balance = Opening Balance + Interest Expense – Repayments

In long-term assets, depreciation expenses are deducted, whereas in long-term debt, interest expense is added.

Shareholders Equity

The shareholders equity section includes two main line items: shareholders’ capital and retained earnings.

Shareholders’ capital: If any company plans to issue stock for company growth, it is calculated here. For calculating this item, follow this formula:

Closing balance = Opening Balance + New Capital Issued – Capital Repurchased

Retained earnings: Retained earnings are what’s left after removing dividends from the company’s net income. When forecasting retained earnings, you need to forecast net income and dividends which are found in the income statement.

As mentioned above, it is always better to create a projected income statement first to project the balance sheet. Here is the formula for retained earnings:

Closing balance = Opening Balance + Net Income – Dividends


In summary, the projected balance sheet helps in making decisions about future growth. It is also used by different groups to understand how a company will perform in the future.

So, this was the guide on how to prepare a projected balance sheet. It is important to have a strong understanding of the income statement and cash flow statement for a better forecast of the balance sheet.

Here are some resources to significantly increase your knowledge:

Cash Flow Statement: Definitive Guide

What is a Traditional Income Statement

12 Important Balance Sheet Ratios

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