What Does Hockey Stick Projection Mean?
A hockey stick projection is one that shows its last few years of actual results flat, and then magically rockets up for future years just like the blade of a hockey stick. These forecasts usually show significant growth in revenues, EBITDA and EBITDA margins.
Also known as a hockey stick forecast.
Divestopedia Explains Hockey Stick Projection
In the absence of supportable underlying assumptions, hockey stick projections are usually discounted by buyers when determining the valuation of a company. In order to make these forecasts more believable, the seller and their adivsors should consider the following:
- What is the catalyst or fundamental reason for financial results to go from flat to rocket-like;
- If EBITDA margins are increasing, provide support for the cost structure with your increasing top line;
- In addition to preparing a projection for the income statement, also present a balance sheet and cash flow statement; and
- There should be a plan B, and a plan C, D and E, if necessary. Scenario planning or sensitivity analysis is a must.