Now that we have put together the BuyerCo’s historical income statement, let’s focus on projecting the income statement into the future. If the company we are considering is public, it is advisable to use analyst estimates for the first two or three years of the projection period, as available. You can use either Wall Street consensus (an average of analysts’ estimates), or a single analyst research report that is sufficiently detailed and does not deviate far from consensus.
In the spreadsheet below, we use a single Deutsche Bank research report for BuyerCo to project the P&L for 2008 through 2010. In the absence of any equity research on BuyerCo, make our own projections that might include “flatlining” the results from the last reported year. We’ll cover flatlining in the next step.