in

Income Statement

Income Statement Template

Please download free income statement template to produce a year-over-year income statement with your own data.

Income Statement

What are Common Drivers for Each Income Statement Item?

Line ItemDriver or Assumption
Sales RevenueSelected growth percentage, pegged growth percentage based on index (such as GDP)
Cost of Goods SoldPercentage of sales, Fixed dollar value
SG&APercentage of sales, fixed amount, trend, fixed dollar value
Depreciation and AmortizationDepreciation Schedule
Interest ExpenseDebt Schedule
Income TaxPercentage of pre-tax income (effective tax rate)

While these drivers are commonly used, they are just general guidelines. There are situations where intuition must be exercised to determine the proper driver or assumption to use. For example, a specific entity may have zero revenue. As such, the percentage of sales drivers cannot be used for COGS. Instead, an analyst may have to rely on examining the past trend of COGS to determine assumptions for forecasting COGS into the future.

The core statements used in financial modeling are the same core statements used in accounting. There are three: the Income Statement, the Balance Sheet, and the Cash Flow Statement. In a financial model, each of these statements will impact the values of the other statements.

READ:   World’s Top 10 Private Equity Firms

What do you think?

770 Points
Upvote Downvote