Professional Documents
Culture Documents
Chapter
Financial Forecasting
McGraw-Hill/Irwin
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Financial forecasting in a firms strategic growth Three financial statements Percent-of-sales method Methods to determine the amount of new funds required in advance Factors that affect cash flow
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Financial Forecasting
Ability to plan ahead and make necessary changes before actual events occur Outcome of a firm through external events might be a function of both:
Risk-taking desires Ability to hedge against risk with planning
No growth or a decline - not the primary cause of shortage of funds A comprehensive financing plan must be developed for a significant growth
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Translating it into a cash budget Assimilating all materials into a pro forma balance sheet
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Unit Costs
Cost to produce each unit:
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Aftertax income
Taxes are deducted from the earning before taxes
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Exercises
Page: 112 Numbers: 8 and 13
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Cash Budget
Pro forma income statement must be translated into cash flows
The long-term is divided into short-term pro forma income statement More precise time frames set to help anticipate patterns of cash inflows and outflows
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Cash Receipts
In the case of Goldman Corporation:
The pro forma income statement is taken for the first half year:
Sales are divided into monthly projections
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Cash Payments
Monthly costs associated with:
Inventory manufactured during the period
Material Labor Overhead
Disbursements for general and administrative expenses Interest payments, taxes, and dividends Cash payments for new plant and equipment
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Actual Budget
Difference between monthly receipts and payments is the net cash flow for the month
Allows the firm to anticipate the need for funding at the end of each month
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Percent-of-Sales Method
Based on the assumption that:
Accounts on the balance sheet will maintain a given percentage relationship to sales Notes payable, common stock, and retained earnings do not maintain a direct relationship with sales volume
Hence percentages are not computed
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RNF = 60% ($100,000) 25% ($100,000) 6% ($300,000) (1 .50) = $60,000 - $25000 - $18,000 (.50) = $35,000 - $9000 = $26,000 required sources of new funds
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Activity
11th Edition Numbers 20, 22 13th Edition Numbers 23, 25
Comprehensive Problems
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