AI enhances forecasting and budgeting by automating data analysis, identifying trends, and generating accurate financial projections. Machine learning (ML) and predictive analytics help accountants process historical data and external economic factors to make data-driven decisions.
Here is a simple example:
User:
"Can you give me the inflation rate, interest rate, e-commerce growth rate for the year 2026 so that I can use them to forecast my business growth next year?"
AI responses:
"1. Inflation Rate
Projected Rate: Approximately 2.0%
Details: The U.S. inflation rate is anticipated to stabilize around 2.0% in 2026, aligning with the Federal Reserve's target.
Projected Federal Funds Rate: Approximately 4.2%
Details: The Federal Reserve's projections indicate that the federal funds rate will stabilize at 4.2% by the end of 2026.
Projected Growth: Approximately 8.8%Oberlo
Details: U.S. e-commerce sales are expected to grow by 8.8% in 2026, reflecting a steady increase in online retail activity.
Inflation Rate: A stable inflation rate around 2.0% suggests predictable pricing and cost structures, aiding in accurate financial forecasting.
Interest Rate: An interest rate of 4.2% could influence borrowing costs and investment decisions, impacting cash flow and profitability.
E-commerce Growth: An 8.8% growth in the e-commerce sector indicates a favorable market environment for JS Online, presenting opportunities for revenue expansion."
User:
"We prepare a Current Year Income Statement for JS Online, which is a hypothetical online retailer, in tabular format - see the table1 below. This table serves as the base income statement for scenario analysis in the next year. Let's assume that my company's revenue growth would follow one of 3 scenarios that are -5%, 0%, and 5% higher than the market growth rate. The fixed and variable costs would proportionally increase with the inflation rate and our interest rate for the financing would be 1% bigger than the market interest rate regardless of the scenarios. Please create the forecasted income statement based on this assumption in a tabular form."
AI responses:
See the table2 below.
AI automates the calculation and interpretation of financial ratios, delivering real-time insights into a company's performance. This automation allows accountants to efficiently assess financial health and provide data-driven recommendations.
For instance, we can ask Google Gemini or Chatgpt to calculate financial ratios from financial statements. In this case, we provided Amazon’s FY 2024 balance sheet and income statement in image format. AI can process various input formats, including images, text, and files such as Excel, Word, and PDF.
User:
"Attached are Amazon's Balanced Sheet and Income Statement. Calculate Price-to-Earnings (P/E) Ratio, Debt-to-Equity (D/E) Ratio, Return on Equity (ROE), Current Ratio, and Earnings Per Share (EPS) with the given data."
AI responses:
Okay, let's calculate the requested financial ratios for Amazon using the provided financial statements as of December 31, 2024.
Given Data (December 31, 2024):
Net Income: $59,248 million
Total Debt (Long-Term Debt + Long-Term Lease Liabilities): $52,623 + $78,277 = $130,900 million
Total Stockholders' Equity: $285,970 million
Total Current Assets: $190,867 million
Total Current Liabilities: $179,431 million
Shares Outstanding: 10,593 million (from the balance sheet)
Calculations:
Price-to-Earnings (P/E) Ratio:
We need the stock price to calculate the P/E ratio. The stock price is not provided in the income statement or balance sheet.
Debt-to-Equity (D/E) Ratio:
D/E Ratio = Total Debt / Total Stockholders' Equity
D/E Ratio = $130,900 million / $285,970 million
D/E Ratio = 0.458
Return on Equity (ROE):
ROE = Net Income / Total Stockholders' Equity
ROE = $59,248 million / $285,970 million
ROE = 0.2072 or 20.72%
Current Ratio:
Current Ratio = Total Current Assets / Total Current Liabilities
Current Ratio = $190,867 million / $179,431 million
Current Ratio = 1.064
Earnings Per Share (EPS):
EPS = Net Income / Shares Outstanding
EPS = $59,248 million / 10,593 million shares
EPS = $5.59 (approximately)
Summary:
Debt-to-Equity Ratio: 0.458
Return on Equity: 20.72%
Current Ratio: 1.064
Earnings Per Share: $5.59
Important Notes:
The P/E ratio cannot be calculated without the current stock price.
All figures are in millions unless otherwise stated.
These calculations are based solely on the provided balance sheet and income statement data. A full financial analysis would require more information and context.
AI-Assisted Tax Research and Reporting
1. Tax Research Automation
AI-powered tools analyze vast amounts of tax regulations, case laws, and IRS guidelines to help accountants stay updated and make informed tax decisions.
Example: AI chatbots or virtual assistants can answer tax-related queries by retrieving relevant IRS provisions or tax court rulings in real time.
2. Identifying Tax Deductions and Credits
AI can analyze financial statements and transactions to identify missed deductions, tax credits, or exemptions.
Example: AI can flag R&D tax credits for businesses by analyzing research expenses and categorizing them appropriately.
3. Automated Tax Compliance and Reporting
AI streamlines tax filing by auto-populating tax forms and ensuring compliance with evolving tax laws.
Example: AI helps cross-check tax filings against compliance rules, ensuring correct calculations and minimizing the risk of audits.
4. Tax Scenario Modeling and Forecasting
AI helps businesses simulate different tax scenarios and optimize their tax strategy.
Example: AI can assess multiple tax scenarios for capital gains tax, helping investors decide the most tax-efficient time to sell assets.