O'Reilly logo

Building Financial Models with Microsoft® Excel®: A Guide for Business Professionals, Second Edition by K. Scott Proctor

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 2. Operating Budget—Assumptions, Sales, and Collections

The Operating Budget, also known as a "profit plan," focuses on a company's Income Statement and its supporting components or "schedules." While Chapter 1 provides an overview of the concept of a Master Budget, this chapter covers the specific steps involved in building the sales components of an Operating Budget from the ground up. Chapters 3 and 4 provide detailed coverage of the steps involved in building the cost components of an Operating Budget. Figure 2.1 highlights the separate sales-oriented components of the Operating Budget.

Preparing an Operating Budget is the first step in the process of building a Master Budget. The preparation of an Operating Budget is a sequential process—it is critical to follow each step outlined below in the order presented. Moreover, the preparation of a financial budget in Chapters 6 and 7 and the consolidated financial statements in Chapter 8 build on the work in this chapter.

NAPAVALE—BACKGROUND INFORMATION ON EXAMPLE COMPANY

I will use a fictitious company named "Napavale" to illustrate the process of building a financial model. Napavale develops, markets, and sells advanced flat-screen computer monitors directly to consumers. These products are sold exclusively through a direct channel of distribution—the monitors are not sold through electronics stores or resellers, for example. Napavale offers customers several ways to purchase its monitors: through a mail-order catalog, over ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required