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Forecasting
Financial
Statements
The Role of Financial Forecasting in Planning
Overview of Forecasting
Forecasting the Income Statement
Forecasting the Balance Sheet
Building a Cash Budget
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Forecasting
Financial
Statements
(continued)
Analyzing Forecasts
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Forecasting Financial Statements > The Role of Financial Forecasting in Planning
The Role of Financial Forecasting in Planning
• Strategic Planning
• Additional Funds Needed (AFN)
• Adjusting Capacity
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Forecasting Financial Statements > The Role of Financial Forecasting in Planning
Strategic Planning
• Using historical internal accounting and sales data, in addition to external market
and economic indicators, a financial forecast is an economist's best guess of what
will happen to a company in financial terms over a given time period, which is
usually one year.
• Financial forecasting is often helped by financial modeling processes. Financial
modeling is the task of building an abstract representation (a model) of a financial
decision-making situation.
• Assumptions play a key role in financial forecasts and can affect the way the
forecasts predict the outcomes of decisions made on the corporate level.
Strategic Planning
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Forecasting Financial Statements > The Role of Financial Forecasting in Planning
Additional Funds Needed (AFN)
• AFN is a way of calculating how much new funding will be required, so that the
firm can realistically look at whether or not they will be able to generate the
additional funding and therefore be able to achieve the higher sales level.
• The simplified formula is: AFN = Projected increase in assets – spontaneous
increase in liabilities – any increase in retained earnings. If this value is negative,
this means the action or project which is being undertaken will generate extra
income for the company, which can be invested elsewhere.
• The mathematical formulas used to determine AFN are based on showing how
liabilities will grow relative to new assets and sales when a project is undertaken
and can be used as tools to determine whether a project or operational expansion
Assets - Economic Resources
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is worthwhile.
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Forecasting Financial Statements > The Role of Financial Forecasting in Planning
Adjusting Capacity
• Capacity planning is the process of determining the production capacity needed
by an organization to meet changing demands for its products.
• Capacity utilization is a concept in economics and managerial accounting which
refers to the extent to which an enterprise or a nation actually uses its installed
productive capacity.
• When planning out how to manage capacity at the optimal level to attain the long
term goals of the firm, capacity planning and utilization and other processes
should be analyzed.
Thunderbird Assembly Line
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Forecasting Financial Statements > Overview of Forecasting
Overview of Forecasting
• Inputs
• Steps Required to Forecast
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Forecasting Financial Statements > Overview of Forecasting
Inputs
• Forecasting is the process of making statements about events whose actual
outcomes (typically) have not yet been observed.
• Time series is a sequence of data points, measured typically at successive time
instants spaced at uniform time intervals.
• Cross-sectional data refers to data collected by observing many subjects at the
same point of time, or without regard to differences in time.
• A longitudinal data involves repeated observations of the same variables over
long periods of time — often many decades.
• Judgmental forecasting methods incorporate intuitive judgements, opinions and
subjective probability estimates.
Forecasts are company specific and can either
show negative or positive trends.
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Forecasting Financial Statements > Overview of Forecasting
Steps Required to Forecast
• It is important to note those earlier identified 'threats' to your business to ensure
that as you forecast you can see the deviation of the best and worst models.
• Three key forecasts include problem definition, cash flow forecast, profit forecast,
and balance sheet forecast.
• By completing these scenarios you gain an insight into the various risks that a
business faces.
Steps
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Forecasting Financial Statements > Forecasting the Income Statement
Forecasting the Income Statement
• Sales Forecast Input
• Inputs to the Production Schedule
• Inputs to COGS
• Other Expenses
• Pro Forma Income Statement
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Forecasting Financial Statements > Forecasting the Income Statement
Sales Forecast Input
• Net sales are operating revenues earned by a company for selling its products or
rendering its services.
• Gross sales are the sum of all sales during a time period. Net sales are gross
sales minus sales returns, sales allowances, and sales discounts.
• The purpose of profit-based sales target metrics is to ensure that marketing and
sales objectives mesh with profit targets.
Sales
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Forecasting Financial Statements > Forecasting the Income Statement
Inputs to the Production Schedule
• A good purchased as a "raw material" goes into the manufacture of a product.
• A good only partially completed during the manufacturing process is called "work
in process".
• When the good is completed as to manufacturing but not yet sold or distributed to
the end-user, it is called a "finished good".
• Inventory management is primarily about specifying the shape and percentage of
stocked goods.
• Basic reasons for keeping an inventory involve time, uncertainty and economics
of scales.
Production budget
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Forecasting Financial Statements > Forecasting the Income Statement
Inputs to COGS
• Costs include all costs of purchase, costs of conversion, and other costs incurred
in bringing the inventories to their present location and condition.
• The key components of cost generally include: parts - raw materials and supplies
used, labor - including associated costs such as payroll taxes and benefits, and
overhead of the business allocable to production.
• A miscalculation or faulty estimation can be amplified drastically, causing a vastly
different forecasted amount of income than what will actually come to pass.
A Sample Income Statement
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Forecasting Financial Statements > Forecasting the Income Statement
Other Expenses
• Other expenses include operation expenses section and non-operation expenses
section.
• Operation section expenses include SG&A, depreciation, amortization, and R&D
expenses.
• Non-operation section expenses include finance costs, income tax expense, and
discontinued operations expenses.
• SG&A is usually understood as a major portion of non-production related costs, in
contrast to production costs such as direct labour.
Expenses
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Forecasting Financial Statements > Forecasting the Income Statement
Pro Forma Income Statement
• The pro forma accounting is a statement of the company's financial activities
while excluding "unusual and nonrecurring transactions" when stating how much
money the company actually made.
• Income statement is a company's financial statement that indicates how the
revenue is transformed into the net income during a certain period of time.
• Pro forma Income statement includes revenue, COGS, operational expenses and
non-operational expenses.
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Forecasting Financial Statements > Forecasting the Balance Sheet
Forecasting the Balance Sheet
• Pro Forma Balance Sheet
• Balance Sheet Analysis
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Forecasting Financial Statements > Forecasting the Balance Sheet
Pro Forma Balance Sheet
• The pro forma accounting is a statement of the company's financial activities
while excluding "unusual and nonrecurring transactions" when stating how much
money the company actually made.
• In business, pro forma financial statements are prepared in advance of a planned
transaction, such as a merger, an acquisition, a new capital investment, or a
change in capital structure such as incurrence of new debt or issuance of equity.
• Pro forma figures should be clearly labeled as such and the reason for any
deviation from reported past figures clearly explained.
Balance Sheet
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Forecasting Financial Statements > Forecasting the Balance Sheet
Balance Sheet Analysis
• Balance sheet is a summary of the financial balances of a sole proprietorship, a
business partnership, a corporation or other business organization. Assets,
liabilities and ownership equity are listed as of a specific date, such as the end of
its financial year.
• Balance sheet analysis (or financial analysis) the process of understanding the
risk and profitability of a firm (business, sub-business or project) through analysis
of reported financial information, particularly annual and quarterly reports.
• Financial ratio analysis should be based on regrouped and adjusted financial
statements. Two types of ratio analysis are performed: 3.1) Analysis of risk and
3.2) analysis of profitability.
Balance sheet
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• Balance sheet analysis consists of 1) reformulating reported Balance sheet, 2)
analysis and adjustments of measurement errors, and 3) financial ratio analysis
on the basis of reformulated and adjusted Balance sheet.
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Forecasting Financial Statements > Building a Cash Budget
Building a Cash Budget
• Receipts
• Payments
• The Forecast Budget
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Forecasting Financial Statements > Building a Cash Budget
Receipts
• Cash receipts come from internal sources, such as cash from sales and accounts
receivable, and external sources, such as bank loans or accounts receivable
financing.
• A company needs to understand the timing involved with cash-producing or cashdepleting activities before it can properly plan for cash flows.
• The receipt cycle is the total time between when products or services are
delivered and when payment from the customer clears the bank.
• The overall objective for a company should be to decrease the receipt cycle.
Flow Chart of Cash Flows
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Forecasting Financial Statements > Building a Cash Budget
Payments
• Cash payments must be made for relevant expenses, which include those to
suppliers for inventory or other supplies, employees for wages, government for
taxes, and lenders for interest on borrowed money.
• A company's objective in regards to the cash dispersement cycle should be to
increase the cycle time, or delay making payments until they are due.
• Typical cash outflows from investing activities include purchase of capital assets,
purchase of bonds/notes or shares of other entities, and loans to other entities.
• Typical cash outflows from financing activities include payments of dividends to
the company's own shareholders, redemption (repurchase) of company's own
Sample Paystub
shares, and repayment of principal and interest on company's own bonds or
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notes.
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Forecasting Financial Statements > Building a Cash Budget
The Forecast Budget
• Cash is the most liquid of assets, and it represents the lifeblood for growth and
investment.
• If a business runs out of cash and is not able to obtain new financing, it will
become insolvent.
• In order to generate cash, a company manages activities. such as billing
customers as quickly as possible, disbursing payments only when they come due,
collecting cash on overdue accounts, and investing idle cash.
• What a cash flow forecast does is estimate cash inputs and outputs over a period
of time, usually at least 90 days, in order to give you assurance that your business
Forecast Example
will have the cash necessary to meet its obligations to others.
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Forecasting Financial Statements > Analyzing Forecasts
Analyzing Forecasts
• Ratio Analysis and EPS
• Impacts of Forecasting on a Business
• Regression Analysis for Forecast Improvement
• Impact of Modifying Inputs on Business Operations
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Forecasting Financial Statements > Analyzing Forecasts
Ratio Analysis and EPS
• Financial analysts use financial ratios to compare the strengths and weaknesses
in various companies.
• Financial ratios quantify many aspects of a business and are an integral part of
the financial statement analysis. Financial ratios are categorized according to the
financial aspect of the business which the ratio measures.
• Earnings per share (EPS) is the amount of earnings per each outstanding share
of a company's stock.
Ratio analysis
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Forecasting Financial Statements > Analyzing Forecasts
Impacts of Forecasting on a Business
• Business planning and forecasting refers to the set of activities where business
operations are planned against the business strategy.
• Forecasting financial statements comprises the estimation of several values including sales, costs, and expected interest rates.
• It is always easier to forecast future performance of a business if your business is
already up and running because there are past trading results to look at.
• Forecasting can be used in Supply Chain Management to make sure that the right
product is at the right place at the right time.
• On a broader level, economic forecasting is the process of making predictions
about the economy as a whole.
Economic Impact
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Forecasting Financial Statements > Analyzing Forecasts
Regression Analysis for Forecast Improvement
• Regression Analysis is a causal / econometric forecasting method. Some
forecasting methods use the assumption that it is possible to identify the
underlying factors that might influence the variable that is being forecast.
• Regression analysis includes several classical assumptions.
• Regression analysis includes many techniques for modeling and analyzing
several variables when the focus is on the relationship between a dependent
variable and one or more independent variables.
• A large body of techniques for carrying out regression analysis has been
developed. Familiar methods, such as linear regression and ordinary least
Regression analysis
squares regression, are parametric.
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Forecasting Financial Statements > Analyzing Forecasts
Impact of Modifying Inputs on Business Operations
• Accounts receivable has a great effect on a firm's expected cash inflows, and thus
modifying this input on a forecast will affect how much cash a company decides to
have on hand.
• Because of its prevalence as an expense, modifying the amount of inventory will
have far reaching consequences on all forecasted financial statements.
• Accounts payable will influence the current liabilities of a business; therefore, its
modification will change a company's perspective on the amount of cash-on-hand
needed.
Inventory
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Appendix
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Forecasting Financial Statements
Key terms
• a merger, an acquisition Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance, and
management dealing with the buying, selling, dividing, and combining of different companies and similar entities that can help
an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other
child entity or using a joint venture.
• ABC analysis The ABC analysis is a business term used to define an inventory categorization technique often used in materials
management. It is also known as Selective Inventory Control. Policies based on ABC analysis: A ITEMS, very tight control and
accurate records; B ITEMS, less tightly controlled, and good records; and C ITEMS, simplest controls possible and minimal
records.
• allocate To distribute according to a plan.
• asset Something or someone of any value; any portion of one's property or effects so considered.
• capacity The maximum that can be produced on a machine or in a facility or group.
• capitalism A socio-economic system based on private property rights, including the private ownership of resources or capital,
with economic decisions made largely through the operation of a market unregulated by the state.
• contribution margin In cost-volume-profit analysis, a form of management accounting, contribution margin is the marginal profit
per unit sale.
• deferred tax liabilities Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense, or
income is accrued but not taxed until received.
• depreciation The measurement of the decline in value of assets. Not to be confused with impairment, which is the
measurement of the unplanned, extraordinary decline in value of assets.
• Diluted EPS Diluted Earnings Per Share (diluted EPS) is a company's earnings per share (EPS) calculated using fully diluted
shares outstanding (i.e. including the impact of stock option grants and convertible bonds).
• disbursement Money paid out or spent.
• Dow Jones index It is an index that shows how 30 large publicly-owned companies based in the United States have traded
during a standard trading session in the stock market.
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Forecasting Financial Statements
• Egain Forecasting a method of controlling building heating by calculating demand for heating energy that should be supplied to
the building in each time unit.
• Financial Accounting Standards Board (FASB) The Financial Accounting Standards Board (FASB) is a private, not-for-profit
organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in
the public's interest.
• financial forecast estimate of future financial outcomes for a company or country
• financial modeling the task of building an abstract representation (a model) of a financial decision making situation.
• fixed costs In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced
by the business.
• forecast An estimation of a future condition.
• forecast An estimation of a future condition.
• independent not contingent or depending on something else
• inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of
time.
• insolvent Unable to pay one's bills as they fall due.
• intangible assets Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched, or physically
measured. They are created through time and effort, and are identifiable as a separate asset.
• intangible assets Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically
measured, and are created through time and effort, and are identifiable as a separate asset.
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Forecasting Financial Statements
• liabilities An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt,
interest, and mortgage payments.
• lien A legal claim; a charge upon real or personal property for the satisfaction of some debt or duty.
• linear regression In statistics, linear regression is an approach to modeling the relationship between a scalar dependent
variable y and one or more explanatory variables denoted X.
• liquidity Availability of cash over short term: ability to service short-term debt.
• NFD net financial debt
• NFIR the net financial interest rate
• nonprobability sample a subset of the population in which the probability of getting any particular sample may be calculated,
and therefore cannot be used to represent the whole population
• Ordinary least squares regression In statistics, ordinary least squares (OLS) or linear least squares is a method for estimating
the unknown parameters in a linear regression model. This method minimizes the sum of squared vertical distances between
the observed responses in the dataset and the responses predicted by the linear approximation.
• overhead Any cost or expenditure (monetary, time, effort or otherwise) incurred in a project or activity, which does not directly
contribute to the progress or outcome of the project or activity.
• Preferred dividends Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over
common stock in the payment of dividends and upon liquidation.
• pro forma For the sake of form only.
• probability sample a technique of studying a population subset in which the liklihood of getting any particular subset may be
calculated
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Forecasting Financial Statements
• RNOA return on net operating assets
• sales Revenues
• solvency The state of having enough funds or liquid assets to pay all of one's debts; the state of being solvent.
• strategy A plan of action intended to accomplish a specific goal
• supply chain management Supply chain management (SCM) is the management of a network of interconnected businesses
involved in the provision of product and service packages required by the end customers in a supply chain.
• taxable income Taxable income refers to the base upon which an income tax system imposes tax.
• warranties In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or
conditions are true or will happen. The other party is permitted to rely on that assurance and seek some type of remedy if it is
not true or followed.
• write-off The term written-off describes a reduction in recognized value. In accounting terminology, it refers to recognition of the
reduced or zero value of an asset.
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Forecasting Financial Statements
A Sample Income Statement
Expenses are listed on a company's income statement.
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Forecasting Financial Statements
Balance Sheet
Simple balance sheet including basic items
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Forecasting Financial Statements
Flow Chart of Cash Flows
This figure charts the flow of cash in and out of a business.
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Forecasting Financial Statements
Sample Paystub
This is an example of a paystub to an employee, one of the most significant cash disbursements necessary for a company.
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Forecasting Financial Statements
Inventory
Modifying inventory inputs will greatly influence financial forecasting.
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Forecasting Financial Statements
Economic Impact
Studies on the economic impact of business operations should be taken into account when forecasting financial statements and business activities. For
example, a mining company may take into account a study such as the one pictured here.
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Forecasting Financial Statements
Steps
Forecasting steps to success
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Forecasting Financial Statements
Forecast Example
This is an example of a cash flow forecast.
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Forecasting Financial Statements
Production budget
Production budget is important for inventory and sales revenue
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Forecasting Financial Statements
Production schedule
Production schedule plays an important role in financial forecasting.
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Forecasting Financial Statements
Balance sheet
Classified balance sheet
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Forecasting Financial Statements
Forecasts are company specific and can either show negative or positive trends.
Predicting revenue can be challenging. Investors use forecasting to identify positive revenue predictions, like in this picture, for good investments.
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Forecasting Financial Statements
Assets - Economic Resources
AFN determines the extra assets and financing that will be needed for a firm to undertake a new project or expand its operations and sales.
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Forecasting Financial Statements
Regression analysis
Regression analysis shows the relationship between a dependent variable and one or more independent variables.
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Forecasting Financial Statements
Sales
Increasing sales revenue is one of the goals of businesses.
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Forecasting Financial Statements
Strategic Planning
Financial forecasting is essential for a company's strategic planning, management, and organization.
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Forecasting Financial Statements
Ratio analysis
Ratio analysis includes profitability ratios, activity (efficiency) ratios, debt ratios, liquidity ratios and market (value) ratios
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Forecasting Financial Statements
Thunderbird Assembly Line
Adjusting capacity will affect the amount of items produced on the assembly line.
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Forecasting Financial Statements
Expenses
Operational expenses and non-operational expenses are the main cash outflow of a business.
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Forecasting Financial Statements
Which of the following statements regarding strategic planning
and financial forecasting is correct?
A) Financial forecasts help strategic planners understand the possibilities
of different investments.
B) The most difficult aspect of preparing a financial forecast is predicting
revenue.
C) Forecasting is straightforward and does not require making many
assumptions.
D) All of these answers.
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Forecasting Financial Statements
Which of the following statements regarding strategic planning
and financial forecasting is correct?
A) Financial forecasts help strategic planners understand the possibilities
of different investments.
B) The most difficult aspect of preparing a financial forecast is predicting
revenue.
C) Forecasting is straightforward and does not require making many
assumptions.
D) All of these answers.
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Forecasting Financial Statements
A company has $1 million in sales last year, $1.5 million in sales
this year, and projected net income of $250,000. It has $5 million
of its assets tied to sales, $3 million in sale affected liabilities, and
a retention ratio of 0.3. What is its AFN?
A) $9,925,000
B) $925,000
C) $23,425,000
D) $9,992,500
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Forecasting Financial Statements
A company has $1 million in sales last year, $1.5 million in sales
this year, and projected net income of $250,000. It has $5 million
of its assets tied to sales, $3 million in sale affected liabilities, and
a retention ratio of 0.3. What is its AFN?
A) $9,925,000
B) $925,000
C) $23,425,000
D) $9,992,500
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Forecasting Financial Statements
Which of the following represents a company in a developed
economy operating at peak effective capacity?
A) 100% design capacity.
B) 50% design capacity.
C) 80% design capacity.
D) 20% design capacity.
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Forecasting Financial Statements
Which of the following represents a company in a developed
economy operating at peak effective capacity?
A) 100% design capacity.
B) 50% design capacity.
C) 80% design capacity.
D) 20% design capacity.
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Forecasting Financial Statements
Which of the following is NOT a statistical forecasting method?
A) Time Series.
B) Cross-sectional.
C) Longitudinal data.
D) Judgmental.
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Forecasting Financial Statements
Which of the following is NOT a statistical forecasting method?
A) Time Series.
B) Cross-sectional.
C) Longitudinal data.
D) Judgmental.
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Forecasting Financial Statements
Which of the following is the correct order of steps when
performing a forecast related to a company's performance?
A) Perform sales forecast, assess market price, assess cost, multiply by
unit price, determine profit.
B) Assess market price, assess cost, perform sales forecast, multiply by
unit price, determine profit.
C) Assess market price, assess cost, perform sales forecast, multiply by
unit price, determine profit.
D) Perform sales forecast, multiply by unit price, assess market price,
assess cost, determine profit.
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Forecasting Financial Statements
Which of the following is the correct order of steps when
performing a forecast related to a company's performance?
A) Perform sales forecast, assess market price, assess cost, multiply by
unit price, determine profit.
B) Assess market price, assess cost, perform sales forecast, multiply by
unit price, determine profit.
C) Assess market price, assess cost, perform sales forecast, multiply by
unit price, determine profit.
D) Perform sales forecast, multiply by unit price, assess market price,
assess cost, determine profit.
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Forecasting Financial Statements
Which of the following risks refers to the possibility that the
company will fail to earn the appropriate return on the money and
effort it puts into the new product? Choose one answer.
A) Financial risk
B) Investment risk
C) Opportunity risk
D) Innovation risk
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Forecasting Financial Statements
Which of the following risks refers to the possibility that the
company will fail to earn the appropriate return on the money and
effort it puts into the new product? Choose one answer.
A) Financial risk
B) Investment risk
C) Opportunity risk
D) Innovation risk
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Forecasting Financial Statements
A company wants to have $5 million in sales with $1 million in
profit. It will have fixed costs of $3 million. Each unit of its product
sells for $20. How much contribution per unit must the company
have to meet its goals?
A) $0.79
B) $1.60
C) $16
D) $8
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Forecasting Financial Statements
A company wants to have $5 million in sales with $1 million in
profit. It will have fixed costs of $3 million. Each unit of its product
sells for $20. How much contribution per unit must the company
have to meet its goals?
A) $0.79
B) $1.60
C) $16
D) $8
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Forecasting Financial Statements
Which of the following appropriately defines a type of production
schedule input?
A) All of these answers.
B) Work in process are materials and components that have begun
transformation to finished goods.
C) Goods for resale are returned products that can still be sold.
D) Raw materials are basic materials that are used to make a company's
products.
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Forecasting Financial Statements
Which of the following appropriately defines a type of production
schedule input?
A) All of these answers.
B) Work in process are materials and components that have begun
transformation to finished goods.
C) Goods for resale are returned products that can still be sold.
D) Raw materials are basic materials that are used to make a company's
products.
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Forecasting Financial Statements
Which of the following statements correctly defines a component
of Cost of Goods Sold?
A) Labor costs are the wages paid to employees who spend their time
working directly on the product.
B) All overhead costs are associated with production activities.
C) All of these answers.
D) Parts, Raw Materials, and supplies used are all physical objects that
go into making a good.
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Forecasting Financial Statements
Which of the following statements correctly defines a component
of Cost of Goods Sold?
A) Labor costs are the wages paid to employees who spend their time
working directly on the product.
B) All overhead costs are associated with production activities.
C) All of these answers.
D) Parts, Raw Materials, and supplies used are all physical objects that
go into making a good.
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Forecasting Financial Statements
Which of the following statements correctly defines a type of other
expenses input?
A) Selling, General, and Administrative expenses consist of the combined
payroll costs.
B) All of these answers.
C) Depreciation is the decrease in the value of an asset due to its use
over time.
D) Amortization is the process of depreciating an intangible asset of the
company.
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Forecasting Financial Statements
Which of the following statements correctly defines a type of other
expenses input?
A) Selling, General, and Administrative expenses consist of the combined
payroll costs.
B) All of these answers.
C) Depreciation is the decrease in the value of an asset due to its use
over time.
D) Amortization is the process of depreciating an intangible asset of the
company.
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Forecasting Financial Statements
A company is considering merging with another business. It is
planning on preparing a pro forma income statement. Which of
the following should be included in the pro forma statement?
A) How much the company's revenues will increase due to the merger.
B) All of these answers.
C) If the merged company will have increased Research & Development
(R&D) expenses.
D) How much the merged company's income tax expense will increase.
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Forecasting Financial Statements
A company is considering merging with another business. It is
planning on preparing a pro forma income statement. Which of
the following should be included in the pro forma statement?
A) How much the company's revenues will increase due to the merger.
B) All of these answers.
C) If the merged company will have increased Research & Development
(R&D) expenses.
D) How much the merged company's income tax expense will increase.
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Forecasting Financial Statements
Which of the following statements regarding pro forma financial
statements is correct?
A) Pro form statements summarize the projected future status of a
company based on current statements.
B) Pro forma statements are used quarterly to project future financial
activity.
C) Pro forma balance sheets should focus on assets only.
D) All of these answers.
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Forecasting Financial Statements
Which of the following statements regarding pro forma financial
statements is correct?
A) Pro form statements summarize the projected future status of a
company based on current statements.
B) Pro forma statements are used quarterly to project future financial
activity.
C) Pro forma balance sheets should focus on assets only.
D) All of these answers.
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Forecasting Financial Statements
Balance analysis is primarily based on ratios. Which of the
following statements regarding ratio analysis associated with
balance sheets is correct?
A) Profitability analysis concerns return on capital: risk analysis concerns
credit risk.
B) Liquidity analysis analyzes whether a firm can recover from a loss or
losses.
C) Solvency analysis analyzes whether a firm can meet its financial
obligations.
D) All of these answers.
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Forecasting Financial Statements
Balance analysis is primarily based on ratios. Which of the
following statements regarding ratio analysis associated with
balance sheets is correct?
A) Profitability analysis concerns return on capital: risk analysis concerns
credit risk.
B) Liquidity analysis analyzes whether a firm can recover from a loss or
losses.
C) Solvency analysis analyzes whether a firm can meet its financial
obligations.
D) All of these answers.
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Forecasting Financial Statements
A company sells produce to small farmer markets and has
receivables of $30,000. It believes that it may face a series of
short-term cash deficiencies in the near future. Which of the
following is an option the company can pursue?
A) Obtain a line of credit with its bank.
B) Borrow against its receivables from a financing company.
C) Borrow against its inventory from a financing company.
D) All of these answers.
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Forecasting Financial Statements
A company sells produce to small farmer markets and has
receivables of $30,000. It believes that it may face a series of
short-term cash deficiencies in the near future. Which of the
following is an option the company can pursue?
A) Obtain a line of credit with its bank.
B) Borrow against its receivables from a financing company.
C) Borrow against its inventory from a financing company.
D) All of these answers.
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Forecasting Financial Statements
A company wants to increase the amount of time in its
disbursement cycle. Which of the following is a valid way to do
that?
A) Use credit cards as often as possible.
B) Mail payment to suppliers for contractual obligations.
C) Pay for purchases using checks.
D) All of these answers.
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Forecasting Financial Statements
A company wants to increase the amount of time in its
disbursement cycle. Which of the following is a valid way to do
that?
A) Use credit cards as often as possible.
B) Mail payment to suppliers for contractual obligations.
C) Pay for purchases using checks.
D) All of these answers.
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Forecasting Financial Statements
A company wants to forecast its cash flows for the next 30 days.
Which method should it use?
A) Adjusted Net Income Method.
B) Direct Method.
C) Pro-forma balance sheet method.
D) Accrual reversal method.
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Forecasting Financial Statements
A company wants to forecast its cash flows for the next 30 days.
Which method should it use?
A) Adjusted Net Income Method.
B) Direct Method.
C) Pro-forma balance sheet method.
D) Accrual reversal method.
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Forecasting Financial Statements
Which of the following correctly pairs a ratio with its financial ratio
grouping?
A) The payout ratio is a type of profitability ratio.
B) Return on equity is a type of market ratio.
C) The acid-test, or quick, ratio is a type of liquidity ratio.
D) Times interest earned ratio is a type of activity ratio.
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Forecasting Financial Statements
Which of the following correctly pairs a ratio with its financial ratio
grouping?
A) The payout ratio is a type of profitability ratio.
B) Return on equity is a type of market ratio.
C) The acid-test, or quick, ratio is a type of liquidity ratio.
D) Times interest earned ratio is a type of activity ratio.
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Forecasting Financial Statements
Which of the following is a way forecasting can improve a
company's operations?
A) Forecasting can inform a company whether it will have sufficient cash
to pay its liabilities.
B) All of these answers.
C) Forecasting can determine whether a company is in a financially
sound position.
D) Forecasting can ensure that the balance between a company's debt
and equity is optimized.
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Forecasting Financial Statements
Which of the following is a way forecasting can improve a
company's operations?
A) Forecasting can inform a company whether it will have sufficient cash
to pay its liabilities.
B) All of these answers.
C) Forecasting can determine whether a company is in a financially
sound position.
D) Forecasting can ensure that the balance between a company's debt
and equity is optimized.
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Forecasting Financial Statements
Which of the following is NOT a classical assumption of
regression analysis?
A) The sample used is representative of the population for the inference
prediction.
B) The variance of the error is constant across observations.
C) It is possible to express a predictor as a linear combination of the
others.
D) The errors are uncorrelated.
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Forecasting Financial Statements
Which of the following is NOT a classical assumption of
regression analysis?
A) The sample used is representative of the population for the inference
prediction.
B) The variance of the error is constant across observations.
C) It is possible to express a predictor as a linear combination of the
others.
D) The errors are uncorrelated.
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Forecasting Financial Statements
Which of the following statements correctly defines how changes
to certain accounts will influence specific forecasts?
A) Modifying accounts receivable balances will alter forecasts related to a
company's future solvency.
B) Modifying accounts payable balances will alter forecasts related to a
company's future solvency.
C) Modifying inventory balances will alter all financial forecasts a
company may make.
D) All of these answers.
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Forecasting Financial Statements
Which of the following statements correctly defines how changes
to certain accounts will influence specific forecasts?
A) Modifying accounts receivable balances will alter forecasts related to a
company's future solvency.
B) Modifying accounts payable balances will alter forecasts related to a
company's future solvency.
C) Modifying inventory balances will alter all financial forecasts a
company may make.
D) All of these answers.
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Forecasting Financial Statements
Attribution
• Wikipedia. "Additional Funds Needed." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Additional_Funds_Needed
• Wiktionary. "sales." CC BY-SA 3.0 http://en.wiktionary.org/wiki/sales
• Wiktionary. "liabilities." CC BY-SA 3.0 http://en.wiktionary.org/wiki/liabilities
• Wiktionary. "asset." CC BY-SA 3.0 http://en.wiktionary.org/wiki/asset
• Wikibooks. "Sustainable Business/Forecasting your business." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Sustainable_Business/Forecasting_your_business
• Wikipedia. "Forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Forecasting
• Wikipedia. "Enterprise performance management." CC BY-SA 3.0
http://en.wikipedia.org/wiki/Enterprise_performance_management#Business_Planning_and_Forecasting
• Wikipedia. "Economic forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Economic_forecasting
• Wiktionary. "inflation." CC BY-SA 3.0 http://en.wiktionary.org/wiki/inflation
• Wikipedia. "Egain Forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Egain%20Forecasting
• Wikipedia. "supply chain management." CC BY-SA 3.0 http://en.wikipedia.org/wiki/supply%20chain%20management
• Wikibooks. "Sustainable Business/Finance." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Sustainable_Business/Finance#Cashflow_budget
• Wikipedia. "Cash flow forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Cash_flow_forecasting
• Wikispaces. "goldkindgrade12accounting - Chapter 18 Notes - Cash Flow Statements." CC BY-SA
http://goldkindgrade12accounting.wikispaces.com/Chapter+18+Notes+-+Cash+Flow+Statements
• Wiktionary. "disbursement." CC BY-SA 3.0 http://en.wiktionary.org/wiki/disbursement
• Wikipedia. "Accounts receivable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_receivable
• Wikipedia. "Inventory." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Inventory
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Forecasting Financial Statements
• Wikipedia. "Accounts receivable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_receivable
• Wikipedia. "Accounts payable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_payable
• Wiktionary. "liquidity." CC BY-SA 3.0 http://en.wiktionary.org/wiki/liquidity
• Wiktionary. "forecast." CC BY-SA 3.0 http://en.wiktionary.org/wiki/forecast
• Wiktionary. "solvency." CC BY-SA 3.0 http://en.wiktionary.org/wiki/solvency
• Wikipedia. "Regression analysis." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Regression_analysis
• Wikipedia. "Forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Forecasting
• Wiktionary. "independent." CC BY-SA 3.0 http://en.wiktionary.org/wiki/independent
• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//algebra/definition/linear-regression
• Wikipedia. "Ordinary least squares regression." CC BY-SA 3.0
http://en.wikipedia.org/wiki/Ordinary%20least%20squares%20regression
• OER Commons. License: Other http://www.oercommons.org/courses/managing-cash-flow/view
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Forecasting Financial Statements
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Forecasting Financial Statements
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Forecasting Financial Statements
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Forecasting Financial Statements
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