There are a few balance sheet items we can project at this time but, as you can see from the pink shading, most require separate schedules that we will build in subsequent steps and link to the balance sheet. Of those few items we can project now, let's first look at PP&E. Gross PP&E increases by the amount of capital expenditures in each period. In reality, the gross PP&E might be periodically reduced by disposals (i.e. asset sales, divestitures), but because such events are lumpy and hard to predict, we assume that gross PP&E grows in perpetuity. Accumulated depreciation grows with depreciation expense each period.
Goodwill is not amortized for GAAP purposes, but is tested periodically for impairment. Goodwill impairment is unexpected and unusual, and not something we would project in future periods. Accordingly, we hold goodwill flat over the projection period. Intangible assets are amortized each period using the amortization expense from the income statement.
Other assets and liabilities are held flat for simplicity. Alternatively, you might project other assets/liabilities as percentages of assets, sales, etc.
Retained earnings and additional paid-in-capital, or APIC, increase each period by the amount of net income available to common shareholders and stock-based compensation, respectively, in each period. Both retained earnings and APIC are components of common equity, and are not broken out separately on our simplified balance sheet. In a subsequent step, we will subtract dividends from common equity, since dividends are distributed to shareholders and do not accrue to retained earnings.
For the moment, our balance sheet does not balance. We will fix that later.