# Build a Top Down Forecast

This guide describes how to build a forecast using high-level assumptions for growth, margins and costs, rather than detailed operational drivers.

{% hint style="info" %}
Before you start

You should have:

* Historical financials (optional but helpful).
* A view of target growth rates and margin profiles.
* A planning horizon (for example 3 or 5 years).
  {% endhint %}

***

## What you will build

* Growth and margin drivers for key financial lines.
* Revenue, COGS and opex variables that apply those drivers.
* A strategic view of future performance without detailed operational modelling.

***

## Steps

{% stepper %}
{% step %}

### Set baseline values

If you have historical data:

* Import it from PDF, Excel, Xero or QuickBooks.
* Use the latest actual year or period as your starting point.

If not:

* Enter your best estimate for current Revenue, COGS and Opex as starting values.

These baselines will be the first forecast period.
{% endstep %}

{% step %}

### Create growth drivers

In the Data Library:

* Create **growth rate drivers** such as:
  * `Growth - Revenue`
  * `Growth - COGS`
  * `Growth - Opex`
* For each driver:
  * Enter annual or monthly growth percentages over the forecast horizon.
  * Upward or downward trends can be modelled through these series.
    {% endstep %}

{% step %}

### Create margin and ratio drivers

You can also forecast using margins rather than separate growth for revenue and costs:

* Create **margin drivers**:
  * `Margin - Gross`
  * `Margin - EBITDA`
* Enter target margin percentages.
* Use these to derive COGS and Opex where appropriate.
  {% endstep %}

{% step %}

### Build top down variables

* For **Revenue**:
  * Create a variable and formula, for example:
    * Revenue\_t = Revenue\_t\_minus\_1 × (1 plus Growth\_Revenue\_t).
* For **COGS**:
  * Either:
    * Apply a growth rate directly, or
    * Use margin: COGS\_t = Revenue\_t × (1 minus Gross\_margin\_t).
* For **Opex**:
  * Use a growth rate or express as percentage of revenue.

This approach lets you adjust just a few growth and margin series to drive the whole forecast.
{% endstep %}

{% step %}

### Add simple tax, capex and debt

To keep the top down model lean:

* Use a single **Tax** configuration or variable with an effective tax rate.
* Model **Capex** as:
  * A percentage of revenue.
  * Or fixed amounts by year.
* Model **Debt** where needed:
  * Simple loan with interest and repayment schedules.
  * Or no debt for unlevered forecasts.
    {% endstep %}

{% step %}

### Review high level outputs

Use P\&L and charts to confirm:

* Revenue growth path matches expectation.
* Gross margin and EBITDA margin move in line with strategy.
* NPAT behaves reasonably over time.

Use Cash Waterfall and Cashflow Statement to:

* See whether top down growth drives sustainable cash generation.
* Check that any capex and debt servicing are affordable.
  {% endstep %}
  {% endstepper %}

***

## Check your work

{% hint style="success" %}

* Growth rate series are correctly assigned to each variable.
* Margins remain within realistic ranges.
* Tax, capex and debt assumptions are coherent with the scale of the business.
* Valuation outputs respond sensibly when you adjust growth and margins.
  {% endhint %}

***

## Troubleshooting

<details>

<summary>Forecast grows too fast or too slowly</summary>

Adjust revenue growth drivers and recheck compound effects.

</details>

<details>

<summary>Margins look unrealistic</summary>

Inspect margin drivers and how they are applied in formulas.

</details>

<details>

<summary>Cash is highly negative despite healthy P&#x26;L</summary>

Check capex, working capital assumptions and debt servicing.

</details>

***

## Related guides

* [Retainer & Project Pipeline Forecast](/use-cases/media-agencies-and-creative-studios/retainer-and-project-pipeline-forecast.md)
* [Folder Structure](/help/workspace-and-organisation/folder-structure.md)
* [Fundamental Data Mapping](/help/stock-ticker-fundamentals/fundamental-data-mapping.md)
* [Manual Time Series Editing](/syntax/variables-syntax/manual-time-series-editing.md)


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