cenario or Sensitivity Analysis

Scenarios are commonly used for financial forecasting and rely on assumptions to provide some
perspective on a company's future. These perspectives typically that the form of:

 Best Case Scenario

 Base Case Scenario

 Weak Case Scenario

The assumptions used in your model will dictate the scenario you are looking at and will directly
impact forecasted income for the company.

Transitioning to Spreadsheet Tools

To build out the financial model, let’s first take a look at some Excel functions and tools
specifically for Financial modeling. As we introduce you to each of these, we will work towards
a financial model, so this will set you up nicely for your final project.

 Data validation is a spreadsheet tool that allows you to limit what values are accepted in
a cell. You can create drop-down lists of items and restrict cell value to date ranges and
numbers.

 INDEX is used when you want the cell to have a value chosen from a specified array and
row number indicated within the INDEX function.

 MATCH is a LOOKUP function that can locate the position of the lookup value within
an array only when it meets specific criteria defined in the MATCH function.

 INDEX AND MATCH together add a powerful feature for advanced formulas. Together
they can give a value from an array (the purpose of the INDEX function) based on a
numeric position (which is provided by the Match function).

 And finally... OFFSET. Here you can select a start point in the spreadsheet, and tell
Excel to return a set of cells that are counted from the starting point.
Data Validation

Excel Steps

The purpose of data validation tools is to confirm that the values within the cell are validated
against a criterion. In other words, the values within the cell are confined to specific
requirements. There are several criteria, including a provided list of values, date range, range of
whole numbers, or decimal values.

To access the Data Validation tool within MS Excel, you use the Data tab and choose Data
Validation.

How to Create a Data Validation Dropdown List

To create a dropdown list using data validation, first create a pivot table:

1. Highlight the rows of data you want in the dropdown

2. Go to Pivot Table under the Insert tab to create a pivot table in a new worksheet (just hit
OK)

3. From the PivotTable Fields menu, select the name of the field/column you want

4. You should now have a list of unique values with all duplication eliminated

5. Copy and paste the list of unique values into a new cell and give that cell block a name,
for example, company_list.

now that we have a named list of unique values, the second step is to create a data validation
feature:

1. In a new worksheet, go to Data Validation under the Data tab

2. Choose your validation criteria. In the video example, we used List

3. For source, reference back to your named list. In our example, it was company_list

4. Hit OK and now you should have a dropdown menu with only the unique values from
your original data source
Pro Tip – You can use the Name Manager feature under the Formula tab to see all of the named
boxes available in a spreadsheet and you can delete boxes, confirm or edit the source or range the
box references.

Create an in-cell dropdown list

Create dropdown lists in a cell with Google Sheets.

Computer AndroidiPhone & iPad

Create a dropdown list

1. In Google Sheets, open a spreadsheet.

2. Select the cell or cells where you want to create a dropdown list.

3. Select an option:

 Enter “@.” In the Menu, under the components section, click “Dropdowns."

 Tip: You can also insert preset dropdowns for use cases such as "Project
status" or "Priority."

 At the top, click Insert Dropdown.

 Click Data Data validation Add rule .

 Right click on a cell Dropdown.

4. On the Data validation rules panel, under "Criteria," select an option:

  Dropdown from a range: Choose the cells to include in the list.

 Dropdown: Enter the dropdown value.

 Click Add another item to add additional dropdown values.

 Optional: To allow multiple selections in your drop-down menus,

select Allow multiple selections.

 Tip: Remove any leading/trailing whitespace in dropdown options to allow

multiple dropdown selections.

5. Optional: If you enter data in a cell that doesn’t match an item on the list, it is rejected. If
you want people to be able to enter items not from the list:

1. Click Advanced options.

2. Under "If the data is invalid:," select Show a warning.

6. Click Done.

Turn dropdown chip suggestions on or off

1. In Google Sheets, open a spreadsheet.

2. At the top, click Tools Suggestion controls Enable dropdown chip suggestions.

Index

Excel Syntax

INDEX takes a range of cells and returns a value from a cell in that range, based on the location
of the cell holding that value. This location is provided in the INDEX function as either row
number or column number.
Excel Syntax

The purpose of the MATCH function is to provide the location of a defined lookup value within
a given lookup array and not the value itself. Unlike the INDEX function, where an array could
be an entire table, the lookup_array for the MATCH function can only be a single column.

The following is the generic syntax for MATCH:

 MATCH(lookup_value, lookup_array, match_type)

 lookup_value – the value you want to search for

 lookup_array – the array in which to search for the look_up value

 match_type – this can vary from 0 (match is an exact match to look_up value), 1 (match
is less than or equal to lookup value), to -1 (match is greater than or equal to lookup
value).

A B C

1 Fruit Color Quantity

2 Apple Red 25

3 Banana Yellow 10

4 Grapes Green 7

Using the simple chart above, for example, imagine that all the data in the table is made up of
three arrays, called fruit_, color_, and quantity_.

 INDEX(fruit_, 3) would return Banana.

However, what if we want to access the color or quantity of the Banana row? This is where we
use the MATCH function. The MATCH function returns the position of the matched value
within lookup_array, not the value itself.

 MATCH(Banana, fruit_, 0) returns 3, since the value, Banana, is in row 3 and MATCH
gives us the location of a cell within an array.
  INDEX(color_, MATCH(Banana, fruit_, 0)) – returns Yellow, since it is in row 3 of the
array color_.

 INDEX(quantity_, MATCH(Banana, fruit_, 0)) – returns 10, since it is in row 3 of the

array quantity_.

Additional Resources to learn about Match Function

Here is the Office support documentation to learn more about MATCH function(opens in a
new tab)

Google Sheets Syntax

Google Sheets uses the same syntax as MS Excel.

Index and Match with Multiple Criteria

Excel Syntax

Thus far, you have learned to use INDEX and MATCH to find values based on a single criterion,
say the name of a fruit. This works well when there is only one entry for that fruit. However,
when there is more than one row with the same look_up value, this formula logic does not work.

In the table below, for example, there are two entries for Apple. Searching just this word will not
provide enough information for Excel to distinguish which row of data we need. We need to
specify which row of Apple we want by adding more criteria.

To do this, Excel uses boolean logic to create the MATCH criteria. The following is the generic
syntax for combining INDEX and MATCH when you need MATCH to meet multiple criteria:
  INDEX(array, MATCH(1, (condition 1)*(condition 2), [match_type]))

A B C

1 Fruit Color Quantity

2 Apple Red 25

3 Banana Yellow 10

4 Grapes Green 7

5 Apple Green 30

So let's say we want information based on the following criteria:

1. Fruit = Apple

2. Color = Green

Remember that the arrays in our set are fruit_, color_, and quantity_. Since we are looking for
two criteria now, the syntax will be:

 INDEX(quantity_,MATCH(1, ("Apple" = fruit_)*("Green" = color_), 0))

 this returns 30 as the number of apples that are green.

Note that in the example shown in the video, instead of hard coding the name of the variable
needed, we simply refer to the spreadsheet cells that contain the criteria.

 INDEX(costofrevenue, MATCH(1, (H1=ticker_symbol)*(H2=year),0))

Google Sheets Syntax

Google Sheets uses the same syntax as MS Excel. Once you have entered your formula, you
need to press Ctrl+Shift+Enter. This places the formula within an ARRAYFORMULA to
execute the function. Missing this step can cause #NAME? error.
Here is the link to the Google support documentation for using MATCH functions in Google
Sheets(opens in a new tab).

Offset - Part I

Financial Forecasting Process – Part I

Remember we want to create three forecasting scenarios based on our assumptions:

 Best Case Scenario

 Base Case Scenario

 Weak Case Scenario

To do this, we need to walk through the following four steps to create our financial forecasting
model:

1. Calculate operating statistics

2. Create the scenarios

3. Create assumptions – this is where the OFFSET function will be used

4. Develop the forecasted scenarios

Step 1 – Calculate operating statistics

Here we calculate operating statistics based on historical data from the income statement:

 Gross margin – 1- (Cost of good sold/Total revenue)

 Operating margin – Operating profit/Total revenue

 Revenue growth – (Current year revenue/Prior year revenue) -1

In the above videos, the formula in column D is incorrect, and should instead say =$F$7/$E$7 -
1*.*
Step 2 – Create the scenarios

In this step, we create the three scenarios for each of our operating statistics because they will
feed into the forecasting model. The numbers used in this step are based on:

 Historical data

 Business analyst's knowledge of the business

 Research

 Assumptions about the business itself

A key question to ask here would be, "Do you expect revenue growth to stay the same or
increase, and if so by how much?"

Offset and Match -Part II

Financial Forecasting Process – Part II

Step 3 – Create assumptions

When running your models, you always want to avoid hardcoding in numbers. Rather, you want
the spreadsheet to change dynamically based on the scenario you choose. This is where
the OFFSET function can be used.

Excel Syntax

The purpose of the OFFSET function is to return a range that is a specified number of rows and
columns from a reference cell or range.

 OFFSET(cell_reference, number of rows to offset by, number of columns to offset

by)

In the other words, using OFFSET allows you to move around on a page to pull data. Look at the
following table for example;
 A B C

1 Fruit Color Quantity

2 Apple Red 25

3 Banana Yellow 10

4 Grapes Green 7

5 Input Grapes

If we are looking for data on the quantity of fruit based on the name input in cell B5 then:

1. cell_reference – The Quantity column name in the cell C1 would be our

2. Use MATCH – to find the row of the word in cell B5 based on the words in the range
A2:A4

3. OFFSET Syntax – OFFSET($C$1, MATCH($B$5, $A$2:$A$4,0),0), the 0 at the end

tells Excel to stay in column C because we want the quantity value.

4. Output – 7

This syntax will produce a different quantity output based on the word in cell B5 of our table.

Google Sheets Syntax

Google Sheets uses the same syntax as MS Excel.

Additional Resource

 Here is the link to the Google support documentation for using OFFSET functions in
Google Sheets(opens in a new tab).

step 4 – Develop the forecasted scenarios

This is the final step in the financial forecasting process. Here we pull all of our work of the
previous steps together to project out a financial picture of our company, based on one of our
three scenarios:
  Best Case Scenario

 Base Case Scenario

 Weak Case Scenario

Formatting principles for Modeling

Here is a guide to best practices for formatting financial models.

1. All inputs to the model should be colored BLUE. These include hard-coded values.

2. All formulas and calculations should be coded in BLACK.

3. Any links to other sheets within the workbook should be coded in GREEN.

4. Any links to other files should be coded in RED.

Here is a good website to review the best practices:

 Formatting for Financial Modeling

To calculate the Gross Margin for the ticker symbol NAVI for each of the 3 years, we need to
use the following formula:

Gross Margin=Total Revenue−Cost of RevenueTotal Revenue\text{Gross Margin} = \frac{\

text{Total Revenue} - \text{Cost of Revenue}}{\text{Total
Revenue}}Gross Margin=Total RevenueTotal Revenue−Cost of Revenue

Here's the breakdown for each year:

Year 1

 Total Revenue: $5,015,000,000

 Cost of Revenue: $1,844,000,000

Gross Margin (Year 1)=5,015,000,000−1,844,000,0005,015,000,000\text{Gross Margin (Year

1)} = \frac{5,015,000,000 - 1,844,000,000}
{5,015,000,000}Gross Margin (Year 1)=5,015,000,0005,015,000,000−1,844,000,000
Gross Margin (Year 1)=3,171,000,0005,015,000,000≈0.631\text{Gross Margin (Year 1)} = \
frac{3,171,000,000}{5,015,000,000} \approx
0.631Gross Margin (Year 1)=5,015,000,0003,171,000,000≈0.631
Gross Margin (Year 1)≈63.1%\text{Gross Margin (Year 1)} \approx
63.1\%Gross Margin (Year 1)≈63.1%

Year 2

 Total Revenue: $5,115,000,000

 Cost of Revenue: $1,945,000,000

Gross Margin (Year 2)=5,115,000,000−1,945,000,0005,115,000,000\text{Gross Margin (Year

2)} = \frac{5,115,000,000 - 1,945,000,000}
{5,115,000,000}Gross Margin (Year 2)=5,115,000,0005,115,000,000−1,945,000,000
Gross Margin (Year 2)=3,170,000,0005,115,000,000≈0.620\text{Gross Margin (Year 2)} = \
frac{3,170,000,000}{5,115,000,000} \approx
0.620Gross Margin (Year 2)=5,115,000,0003,170,000,000≈0.620
Gross Margin (Year 2)≈62.0%\text{Gross Margin (Year 2)} \approx
62.0\%Gross Margin (Year 2)≈62.0%

Year 3

 Total Revenue: $4,183,000,000

 Cost of Revenue: $1,479,000,000

Gross Margin (Year 3)=4,183,000,000−1,479,000,0004,183,000,000\text{Gross Margin (Year

3)} = \frac{4,183,000,000 - 1,479,000,000}
{4,183,000,000}Gross Margin (Year 3)=4,183,000,0004,183,000,000−1,479,000,000
Gross Margin (Year 3)=2,704,000,0004,183,000,000≈0.646\text{Gross Margin (Year 3)} = \
frac{2,704,000,000}{4,183,000,000} \approx
0.646Gross Margin (Year 3)=4,183,000,0002,704,000,000≈0.646
Gross Margin (Year 3)≈64.6%\text{Gross Margin (Year 3)} \approx
64.6\%Gross Margin (Year 3)≈64.6%

Summary of Gross Margins for NAVI

 Year 1: 63.1%

 Year 2: 62.0%

 Year 3: 64.6%

You said:

Match the Operating Profit for the ticker symbol WRK for each of the 3 years we have historical
data on. Operating Profit Year Year 1 Year 2 Year 3

ChatGPT said:

ChatGPT

To calculate the Operating Profit for the ticker symbol WRK for each of the 3 years, we need to
use the following formula:
Operating Profit=Total Revenue−Cost of Revenue−Sales, General and Admin.−Other Operating
Items\text{Operating Profit} = \text{Total Revenue} - \text{Cost of Revenue} - \text{Sales,
General and Admin.} - \text{Other Operating
Items}Operating Profit=Total Revenue−Cost of Revenue−Sales, General and Admin.−Other Ope
rating Items

Here’s how to calculate the Operating Profit for each year:

Year 1

 Total Revenue: $9,895,100,000

 Cost of Revenue: $7,961,500,000

 Sales, General and Admin.: $937,600,000

 Other Operating Items: $86,000,000

Operating Profit (Year 1)=9,895,100,000−7,961,500,000−937,600,000−86,000,000\

text{Operating Profit (Year 1)} = 9,895,100,000 - 7,961,500,000 - 937,600,000 -
86,000,000Operating Profit (Year 1)=9,895,100,000−7,961,500,000−937,600,000−86,000,000
Operating Profit (Year 1)=9,895,100,000−8,985,100,000\text{Operating Profit (Year 1)} =
9,895,100,000 - 8,985,100,000Operating Profit (Year 1)=9,895,100,000−8,985,100,000
Operating Profit (Year 1)=910,000,000\text{Operating Profit (Year 1)} =
910,000,000Operating Profit (Year 1)=910,000,000

Year 2

 Total Revenue: $11,124,800,000

 Cost of Revenue: $8,986,500,000

 Sales, General and Admin.: $1,026,100,000

 Other Operating Items: $118,900,000

Operating Profit (Year 2)=11,124,800,000−8,986,500,000−1,026,100,000−118,900,000\

text{Operating Profit (Year 2)} = 11,124,800,000 - 8,986,500,000 - 1,026,100,000 -
118,900,000Operating Profit (Year 2)=11,124,800,000−8,986,500,000−1,026,100,000−118,900,
000 Operating Profit (Year 2)=11,124,800,000−10,131,500,000\text{Operating Profit (Year 2)}
= 11,124,800,000 - 10,131,500,000Operating Profit (Year 2)=11,124,800,000−10,131,500,000
Operating Profit (Year 2)=993,300,000\text{Operating Profit (Year 2)} =
993,300,000Operating Profit (Year 2)=993,300,000

Year 3

 Total Revenue: $14,171,800,000

 Cost of Revenue: $11,413,200,000

 Sales, General and Admin.: $1,750,100,000

 Other Operating Items: $211,800,000

Operating Profit (Year 3)=14,171,800,000−11,413,200,000−1,750,100,000−211,800,000\

text{Operating Profit (Year 3)} = 14,171,800,000 - 11,413,200,000 - 1,750,100,000 -
211,800,000Operating Profit (Year 3)=14,171,800,000−11,413,200,000−1,750,100,000−211,800
,000 Operating Profit (Year 3)=14,171,800,000−13,375,100,000\text{Operating Profit (Year 3)}
= 14,171,800,000 - 13,375,100,000Operating Profit (Year 3)=14,171,800,000−13,375,100,000
Operating Profit (Year 3)=796,700,000\text{Operating Profit (Year 3)} =
796,700,000Operating Profit (Year 3)=796,700,000

Summary of Operating Profits for WRK

 Year 1: $910,000,000

 Year 2: $993,300,000

 Year 3: $796,700,000

You said:

o ahead and make the following assumptions for the three forecasting statistics for the next two
years for the company Paypal (Ticker Symbol PYPL). Assumptions for the three forecasting
statistics for the next two years for the company Paypal (Ticker Symbol PYPL)Match the Base
case forecast for Gross Profit and Operating Income for PYPL. Forecasted metric Value Gross
Profit for Year 4 Gross Profit for Year 5 Operating Income for Year 4 Operating Income for
Year 5

ChatGPT said:

ChatGPT

To forecast the Gross Profit and Operating Income for PayPal (Ticker Symbol PYPL) for the
next two years, we can use the historical data provided and make reasonable assumptions. Here's
how to approach it:

1. Calculate Historical Gross Profit and Operating Income:

First, we need to calculate the historical Gross Profit and Operating Income for PYPL using the
given data.

Gross Profit is calculated as: Gross Profit=Total Revenue−Cost of Revenue\text{Gross Profit}

= \text{Total Revenue} - \text{Cost of Revenue}Gross Profit=Total Revenue−Cost of Revenue

Operating Income is calculated as: Operating Income=Gross Profit−Sales, General and Admin.
−Other Operating Items\text{Operating Income} = \text{Gross Profit} - \text{Sales, General and
Admin.} - \text{Other Operating
Items}Operating Income=Gross Profit−Sales, General and Admin.−Other Operating Items

Historical Data for PYPL:

o Year 1 (12/31/2014)

 Total Revenue: $8,025,000,000

 Cost of Revenue: $747,000,000

 Sales, General and Admin.: $5,494,000,000

 Other Operating Items: $516,000,000

Gross Profit (Year 1)=8,025,000,000−747,000,000=7,278,000,000\text{Gross Profit (Year 1)} =
8,025,000,000 - 747,000,000 =
7,278,000,000Gross Profit (Year 1)=8,025,000,000−747,000,000=7,278,000,000
Operating Income (Year 1)=7,278,000,000−5,494,000,000−516,000,000=1,268,000,000\
text{Operating Income (Year 1)} = 7,278,000,000 - 5,494,000,000 - 516,000,000 =
1,268,000,000Operating Income (Year 1)=7,278,000,000−5,494,000,000−516,000,000=1,268,00
0,000

o Year 2 (12/31/2015)

 Total Revenue: $9,248,000,000

 Cost of Revenue: $792,000,000

 Sales, General and Admin.: $6,339,000,000

 Other Operating Items: $608,000,000

Gross Profit (Year 2)=9,248,000,000−792,000,000=8,456,000,000\text{Gross Profit (Year 2)} =

9,248,000,000 - 792,000,000 =
8,456,000,000Gross Profit (Year 2)=9,248,000,000−792,000,000=8,456,000,000
Operating Income (Year 2)=8,456,000,000−6,339,000,000−608,000,000=1,509,000,000\
text{Operating Income (Year 2)} = 8,456,000,000 - 6,339,000,000 - 608,000,000 =
1,509,000,000Operating Income (Year 2)=8,456,000,000−6,339,000,000−608,000,000=1,509,00
0,000

o Year 3 (12/31/2016)

 Total Revenue: $10,842,000,000

 Cost of Revenue: $834,000,000

 Sales, General and Admin.: $7,698,000,000

 Other Operating Items: $724,000,000

Gross Profit (Year 3)=10,842,000,000−834,000,000=10,008,000,000\text{Gross Profit (Year 3)}
= 10,842,000,000 - 834,000,000 =
10,008,000,000Gross Profit (Year 3)=10,842,000,000−834,000,000=10,008,000,000
Operating Income (Year 3)=10,008,000,000−7,698,000,000−724,000,000=1,586,000,000\
text{Operating Income (Year 3)} = 10,008,000,000 - 7,698,000,000 - 724,000,000 =
1,586,000,000Operating Income (Year 3)=10,008,000,000−7,698,000,000−724,000,000=1,586,0
00,000

2. Calculate Growth Rates:

To forecast for the next two years, calculate the growth rates based on historical data.

Gross Profit Growth Rate:

Growth Rate (Gross Profit)=Gross Profit (Year 3)−Gross Profit (Year 2)Gross Profit (Year 2)−G
ross Profit (Year 1)\text{Growth Rate (Gross Profit)} = \frac{\text{Gross Profit (Year 3)} - \
text{Gross Profit (Year 2)}}{\text{Gross Profit (Year 2)} - \text{Gross Profit (Year
1)}}Growth Rate (Gross Profit)=Gross Profit (Year 2)−Gross Profit (Year 1)Gross Profit (Year 3
)−Gross Profit (Year 2)
Growth Rate (Gross Profit)=10,008,000,000−8,456,000,0008,456,000,000−7,278,000,000≈1.296
\text{Growth Rate (Gross Profit)} = \frac{10,008,000,000 - 8,456,000,000}{8,456,000,000 -
7,278,000,000} \approx
1.296Growth Rate (Gross Profit)=8,456,000,000−7,278,000,00010,008,000,000−8,456,000,000
≈1.296

Operating Income Growth Rate:

Growth Rate (Operating Income)=Operating Income (Year 3)−Operating Income (Year 2)Operat
ing Income (Year 2)−Operating Income (Year 1)\text{Growth Rate (Operating Income)} = \
frac{\text{Operating Income (Year 3)} - \text{Operating Income (Year 2)}}{\text{Operating
Income (Year 2)} - \text{Operating Income (Year
1)}}Growth Rate (Operating Income)=Operating Income (Year 2)−Operating Income (Year 1)O
perating Income (Year 3)−Operating Income (Year 2)
Growth Rate (Operating Income)=1,586,000,000−1,509,000,0001,509,000,000−1,268,000,000≈
0.533\text{Growth Rate (Operating Income)} = \frac{1,586,000,000 - 1,509,000,000}
{1,509,000,000 - 1,268,000,000} \approx
0.533Growth Rate (Operating Income)=1,509,000,000−1,268,000,0001,586,000,000−1,509,000,
000≈0.533

3. Forecast Values for Year 4 and Year 5:

Using the average growth rates, forecast the values for Year 4 and Year 5.

For Gross Profit:

Gross Profit (Year 4)=Gross Profit (Year 3)×(1+Growth Rate (Gross Profit))\text{Gross Profit
(Year 4)} = \text{Gross Profit (Year 3)} \times (1 + \text{Growth Rate (Gross
Profit)})Gross Profit (Year 4)=Gross Profit (Year 3)×(1+Growth Rate (Gross Profit))
Gross Profit (Year 4)=10,008,000,000×(1+1.296)≈22,970,000,000\text{Gross Profit (Year 4)} =
10,008,000,000 \times (1 + 1.296) \approx
22,970,000,000Gross Profit (Year 4)=10,008,000,000×(1+1.296)≈22,970,000,000
Gross Profit (Year 5)=Gross Profit (Year 4)×(1+Growth Rate (Gross Profit))\text{Gross Profit
(Year 5)} = \text{Gross Profit (Year 4)} \times (1 + \text{Growth Rate (Gross
Profit)})Gross Profit (Year 5)=Gross Profit (Year 4)×(1+Growth Rate (Gross Profit))
Gross Profit (Year 5)=22,970,000,000×(1+1.296)≈52,757,000,000\text{Gross Profit (Year 5)} =
22,970,000,000 \times (1 + 1.296) \approx
52,757,000,000Gross Profit (Year 5)=22,970,000,000×(1+1.296)≈52,757,000,000

For Operating Income:

Operating Income (Year 4)=Operating Income (Year 3)×(1+Growth Rate (Operating Income))\
text{Operating Income (Year 4)} = \text{Operating Income (Year 3)} \times (1 + \text{Growth
Rate (Operating
Income)})Operating Income (Year 4)=Operating Income (Year 3)×(1+Growth Rate (Operating I
ncome)) Operating Income (Year 4)=1,586,000,000×(1+0.533)≈2,434,000,000\text{Operating
Income (Year 4)} = 1,586,000,000 \times (1 + 0.533) \approx
2,434,000,000Operating Income (Year 4)=1,586,000,000×(1+0.533)≈2,434,000,000
Operating Income (Year 5)=Operating Income (Year 4)×(1+Growth Rate (Operating Income))\
text{Operating Income (Year 5)} = \text{Operating Income (Year 4)} \times (1 + \text{Growth
Rate (Operating
Income)})Operating Income (Year 5)=Operating Income (Year 4)×(1+Growth Rate (Operating I
ncome)) Operating Income (Year 5)=2,434,000,000×(1+0.533)≈3,737,000,000\text{Operating
Income (Year 5)} = 2,434,000,000 \times (1 + 0.533) \approx
3,737,000,000Operating Income (Year 5)=2,434,000,000×(1+0.533)≈3,737,000,000

Summary of Forecasted Values for PYPL

 Gross Profit for Year 4: $22,970,000,000

 Gross Profit for Year 5: $52,757,000,000

 Operating Income for Year 4: $2,434,000,000

 Operating Income for Year 5: $3,737,000,000

These forecasts assume that the historical growth rates continue, which might not always be the
case. Adjustments may be needed based on actual future performance and other market factors.

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further clarification on the forecasting process or any other topic, feel free to let me know!

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You said:

revenue growth year 4 year 5 strong case 16 17 base case 15.5 15.5 weak case 14 14 cross
margin strong case 0.93 0.93 base case 0.92 0.92 weak case 0.9 0.9 operating margin strong case
0.17 0.17 base case 0.15 0.15 weak case 0.14 0.14 Match the Base case forecast for Gross Profit
and Operating Income for PYPL. Forecasted metric Value Gross Profit for Year 4 Gross Profit
for Year 5 Operating Income for Year 4 Operating Income for Year 5

ChatGPT said:

ChatGPT

To match the Base Case forecast for Gross Profit and Operating Income for PYPL, we'll use the
provided assumptions for revenue growth, gross margin, and operating margin.

Steps to Calculate Forecasts:

1. Gross Profit Calculation:

Gross Profit=Total Revenue×Gross Margin\text{Gross Profit} = \text{Total Revenue} \times \

text{Gross Margin}Gross Profit=Total Revenue×Gross Margin

2. Operating Income Calculation:

Operating Income=Gross Profit×Operating Margin\text{Operating Income} = \text{Gross

Profit} \times \text{Operating Margin}Operating Income=Gross Profit×Operating Margin

Given Assumptions for the Base Case:

 Revenue Growth Rates:

o Year 4: 15.5%

o Year 5: 15.5%

 Gross Margins:

o Year 4: 0.92
 o Year 5: 0.92

 Operating Margins:

o Year 4: 0.15

o Year 5: 0.15

Historical Data for PYPL (for reference):

 Year 3 Gross Profit: $10,008,000,000

Forecasting Revenue for Year 4 and Year 5:

Revenue for Year 4:

Revenue (Year 4)=Revenue (Year 3)×(1+Revenue Growth Rate)\text{Revenue (Year 4)} = \

text{Revenue (Year 3)} \times (1 + \text{Revenue Growth
Rate})Revenue (Year 4)=Revenue (Year 3)×(1+Revenue Growth Rate)
Revenue (Year 4)=10,842,000,000×(1+0.155)=10,842,000,000×1.155≈12,522,210,000\
text{Revenue (Year 4)} = 10,842,000,000 \times (1 + 0.155) = 10,842,000,000 \times 1.155 \
approx
12,522,210,000Revenue (Year 4)=10,842,000,000×(1+0.155)=10,842,000,000×1.155≈12,522,21
0,000

Revenue for Year 5:

Revenue (Year 5)=Revenue (Year 4)×(1+Revenue Growth Rate)\text{Revenue (Year 5)} = \

text{Revenue (Year 4)} \times (1 + \text{Revenue Growth
Rate})Revenue (Year 5)=Revenue (Year 4)×(1+Revenue Growth Rate)
Revenue (Year 5)=12,522,210,000×(1+0.155)=12,522,210,000×1.155≈14,456,380,500\
text{Revenue (Year 5)} = 12,522,210,000 \times (1 + 0.155) = 12,522,210,000 \times 1.155 \
approx
14,456,380,500Revenue (Year 5)=12,522,210,000×(1+0.155)=12,522,210,000×1.155≈14,456,38
0,500

Calculating Gross Profit:

Gross Profit for Year 4:

Gross Profit (Year 4)=Revenue (Year 4)×Gross Margin\text{Gross Profit (Year 4)} = \
text{Revenue (Year 4)} \times \text{Gross
Margin}Gross Profit (Year 4)=Revenue (Year 4)×Gross Margin
Gross Profit (Year 4)=12,522,210,000×0.92≈11,526,637,200\text{Gross Profit (Year 4)} =
12,522,210,000 \times 0.92 \approx
11,526,637,200Gross Profit (Year 4)=12,522,210,000×0.92≈11,526,637,200

Gross Profit for Year 5:

Gross Profit (Year 5)=Revenue (Year 5)×Gross Margin\text{Gross Profit (Year 5)} = \
text{Revenue (Year 5)} \times \text{Gross
Margin}Gross Profit (Year 5)=Revenue (Year 5)×Gross Margin
Gross Profit (Year 5)=14,456,380,500×0.92≈13,293,868,660\text{Gross Profit (Year 5)} =
14,456,380,500 \times 0.92 \approx
13,293,868,660Gross Profit (Year 5)=14,456,380,500×0.92≈13,293,868,660

Calculating Operating Income:

Operating Income for Year 4:

Operating Income (Year 4)=Gross Profit (Year 4)×Operating Margin\text{Operating Income

(Year 4)} = \text{Gross Profit (Year 4)} \times \text{Operating
Margin}Operating Income (Year 4)=Gross Profit (Year 4)×Operating Margin
Operating Income (Year 4)=11,526,637,200×0.15≈1,728,995,580\text{Operating Income (Year
4)} = 11,526,637,200 \times 0.15 \approx
1,728,995,580Operating Income (Year 4)=11,526,637,200×0.15≈1,728,995,580

Operating Income for Year 5:

Operating Income (Year 5)=Gross Profit (Year 5)×Operating Margin\text{Operating Income

(Year 5)} = \text{Gross Profit (Year 5)} \times \text{Operating
Margin}Operating Income (Year 5)=Gross Profit (Year 5)×Operating Margin
Operating Income (Year 5)=13,293,868,660×0.15≈1,994,080,300\text{Operating Income (Year
5)} = 13,293,868,660 \times 0.15 \approx
1,994,080,300Operating Income (Year 5)=13,293,868,660×0.15≈1,994,080,300

Summary of Base Case Forecasts for PYPL:

 Gross Profit for Year 4: $11,526,637,200 (approximately $11.53 billion)

 Gross Profit for Year 5: $13,293,868,660 (approximately $13.29 billion)

 Operating Income for Year 4: $1,728,995,580 (approximately $1.73 billion)

 Operating Income for Year 5: $1,994,080,300 (approximately $1.99 billion)