The culmination of the budgeting process for sales, cost of sales (COGS), and operating expenses (OPEX) —which we covered in previous articles of this series— allows us to build the Projected Income Statement, also known as the Budgeted Profit and Loss Statement. This document projects the company’s future profitability, presenting in a structured manner the revenues, directly associated costs (COGS), and operating expenses, down to Operating Income, as we explained in our series on the Income Statement.
Beyond the overall P&L: the sub-P&Ls
Operating income is a fundamental indicator for monitoring the business at a global level, but its usefulness extends to the detailed analysis of business units, product lines, channels, or specific activities. Building these “sub-P&Ls” by segment is essential to understand the individual profitability of each component and to reflect how the company is organized to serve its customers.
This breakdown makes it possible to clearly identify which areas are operating within expectations —or exceeding them—, enabling management to allocate more resources to them or replicate their strategies in other parts of the business. It also reveals which areas are underperforming, allowing for the implementation of improvement plans, resource reallocation, or, in extreme cases, reconsideration of unprofitable activities.
Monthly monitoring: actual vs. rolling vs. historical
The projected P&L should be monitored monthly, comparing actual results with budgeted figures in the Rolling Forecast and with historical performance for the same month in previous years. This analysis, both on a monthly and year-to-date (YTD) basis, allows for early identification of emerging issues and relevant patterns. For an in-depth analysis, variances between actual and budgeted figures should be examined, in both absolute and percentage terms: they are the key to understanding deviations from the plan and incorporating corrective actions into the next iteration of the Rolling Forecast.
The concept of “Landing”
The Landing is an updated estimate of the projected financial result for the current year-end. It is calculated by combining the actual year-to-date performance up to the month of analysis with the projections from the Rolling Forecast for the remaining months:
ANNUAL LANDING = ACTUAL YTD RESULTS + ROLLING FORECAST PROJECTION (REMAINING MONTHS)
For example: as of April, the annual Landing would equal the actual year-to-date results from January to April, plus the Rolling Forecast projection from May to December. This metric provides a much more accurate forward-looking view of the expected final result at year-end.
Margin analysis
Effective monitoring of the projected P&L allows for margin analysis at its different levels —gross, operating, and net— as we explored in depth in our post on how to read and analyze the Income Statement, and facilitates the review of financial ratios by comparing the cost and expense structure with revenues, both against actual results and historical trends.
The Projected Income Statement, broken down to the level of detail the organization requires, is an essential input for the continuous monitoring of business performance. Its monthly analysis, within the context of a Rolling Forecast updated quarterly, empowers management to make informed decisions and adjust strategies in a timely manner.
Clarus Tip: A Projected Income Statement that is not compared monthly against reality is just a document of good intentions. Its true value lies in disciplined monitoring.
At Clarus Consultores, we help you build and monitor your Projected Income Statement, connecting each budget with your company’s actual strategy. Let’s talk about your next Rolling Forecast.