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Chapter 4
Financial Forecasting
Chapter 4 - Outline
What
LT 4-1
is Financial Forecasting? 2 Methods of Financial Forecasting 3 Financial Statements for Forecasting Steps in a Pro Forma Income Statement (I/S) Determining Production Requirements Percent-of-Sales Method
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
LT 4-2
LT 4-3
forecasting is looking ahead to develop a financial plan for the future important for the strategic growth of a
Very
PPT 4-1
LT 4-4
Forma Income Statement (I/S) Cash Budget Pro Forma Balance Sheet (B/S) The first step is to develop a sales projection
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-2
LT 4-5
a sales projection Determine a production schedule (or production requirements) Compute other expenses Determine profit by completing an actual pro forma income statement (I/S)
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
TABLE 4-1 Projected wheel and caster sales (first six months, 2005)
McGraw-Hill/Irwin
PPT 4-3
PPT 4-3
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-3
PPT 4-3
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-3 TABLE 4-6 Allocation of manufacturing cost and determination of gross profits TABLE 4-7 Value of ending inventory
PPT 4-3
McGraw-Hill/Irwin
McGraw-Hill/Irwin
cash sales and collection timing of credit sales Forecast cash payments Determine monthly cash flow Construct cash budget Determine cash excess or need for borrowing
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PPT 4-5
PPT 4-5
TABLE 4-10 Monthly cast receipts TABLE 4-9 Monthly sales pattern
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-5
PPT 4-6
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-6 TABLE 4-13 Summary of all monthly cash payments TABLE 4-14 Monthly cash flow
PPT 4-7
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-8
McGraw-Hill/Irwin
McGraw-Hill/Irwin
PPT 4-9 FIGURE 4-2 Development of a pro forma balance sheet TABLE 4-17
PPT 4-10
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Percent-of-Sales Method
TABLE 4-18
PPT 4-11
LT 4-7
A short-cut, less exact, easier method of determining financing needs (The quick and dirty approach) Assumes that B/S accounts will maintain a constant percentage relationship to sales
Assets / Current Sales = % of Sales
McGraw-Hill/Irwin
McGraw-Hill/Irwin