Guidelines for Forecasting Financial Statements from Historical Financial Statements for Valuation Purposes (Updated)

In this teaching note I list some suggestions that might be useful to take into account when forecasting financial statements departing from historical data. The ideas presented in this note are the result of advising undergraduate and graduate students in the course Econ 195.96/295.96 (Crosslisted: PubPol 264.96): Cash Flow Valuation (CFV): A Basic Introduction to an Integrated Market-Based Approach at Duke University during the Fall of 2005 and my previous experience of teaching the subject at Politecnico Grancolombiano in Bogota, and other universities in Colombia.The note is divided in four sections: Section One, Analyzing the Historical Financial Statements, is related to the analysis and use of historical information from the financial statements. In Section Two I mention some tips related to the construction of forecasted financial statements. In Section Three I present a list of tips related to the proper way to valuate the cash flows. In Section Four a brief summary is presented.