Pro forma revenue assumptions

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by a searcher from University of Miami
in Indianapolis, IN, USA

5mos ago

Pro forma revenue assumptions

When building a pro forma to include downside case, base case, and better case, what is the standard assumption for monthly revenue growth/decline? For example, when modeling a 10% revenue decline in Y1, one can model .83% decline for 12 months, a 10% decline in one month with all other months remaining flat, etc. Likely it is neither scenario, so I'm curious how others approach this.

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reply by a professional 5mos ago
from Wilfrid Laurier University in Calgary, AB, Canada

I agree with the process offered by ^redacted‌ here. Understanding the company performance, monthly or quarterly seasonality, customer relationships and sales process is a far better solution than a plugged number.

reply by a searcher 4mos ago
from Columbia University in New York, NY, USA

As others have said, if you want your downside case to be useful you have to be thoughtful about the assumptions. If you think 10% rev decline in Y1 is the right downside case then there has to be a reason why that might happen and what that could look like in terms of timing & impacts on specific line items. It probably doesn't matter too much how that hits on a monthly P&L projection since your projection is almost certainly wrong. If you want to stress test your cash, make the impact happen all at once, if you want to have more confidence in what a general decline might look like, spread it out over time. You can make any model case look as disastrous or optimistic as you like, but as they say: garbage in, garbage out