Financial Analysis Results Explanation

Overview of Projections

The What-If Profit and Cash Flow Planner provides comprehensive financial projections based on your input assumptions. The results show how your business might perform under different scenarios, helping you make informed strategic decisions.

Revenue Projections

Your revenue growth reflects the compound annual growth rate you’ve specified. In the early years, growth appears relatively modest in absolute dollar terms, but the power of compounding becomes evident in later years. The tool accounts for:

• Base revenue in Year 1

• Annual growth rate applied to previous year’s revenue

• Potential seasonality or market changes through scenario adjustments

Expense Analysis

Expenses grow according to your specified rate, but importantly:

• Fixed vs. variable cost structures are implied in the growth pattern

• The expense-to-revenue ratio changes over time based on your input differentials between growth rates

• Significant cost jumps in specific years may indicate needed operational adjustments

Profitability Metrics

Net profit calculations incorporate:

• Gross profit (revenue minus direct costs)

• Operating expenses

• Interest expenses on debt

• Tax obligations at your specified rate

The profit margin trend shows whether your business becomes more or less efficient over time. Look for:

• Improving margins indicating scalability

• Declining margins that may signal rising costs outpacing revenue

• Break-even points in early years for startups

Cash Flow Dynamics

The cash flow analysis goes beyond simple profit to show actual money movement:

• Operating cash flow adjusts profit for non-cash items (depreciation)

• Working capital changes account for timing differences in receivables/payables

• Capital expenditures represent investments in future growth

• Free cash flow shows what’s truly available for investors or reinvestment

Positive free cash flow enables debt repayment, dividends, or new investments. Negative cash flow may require financing.

Scenario Comparisons

When evaluating multiple scenarios:

• The best scenario isn’t always the one with highest revenue – consider risk and sustainability

• Stress-test your assumptions by creating pessimistic cases

• Look for inflection points where small input changes create large outcome differences

• Identify which variables have the most impact on your key metrics

Key Recommendations

1. Focus on cash flow as much as profit – many profitable businesses fail due to cash crunches

2. Monitor your working capital requirements as you grow

3. Consider creating scenarios with different growth/cost assumptions to understand your risk profile

4. Pay special attention to Year 2-3 projections where many businesses face scaling challenges

5. Revisit your projections quarterly with actual results to improve forecast accuracy

This analysis provides the foundation for strategic planning, but should be combined with market analysis and operational considerations for complete decision-making.