Financial Forecasting

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Presentation transcript:

Financial Forecasting Chapter 4 Financial Forecasting

PPT 4-1 FIGURE 4-1 Development of pro forma statements

PPT 4-2 TABLE 4-1 Projected wheel and caster sales (first six months, 2005)

PPT 4-3 TABLE 4-2 Stock of beginning inventory

PPT 4-3 TABLE 4-3 Production requirements for six months

PPT 4-3 TABLE 4-4 Unit costs

PPT 4-3 TABLE 4-5 Total production costs

PPT 4-3 TABLE 4-6 Allocation of manufacturing cost and determination of gross profits

PPT 4-3 TABLE 4-7 Value of ending inventory

PPT 4-4 TABLE 4-8

PPT 4-5 TABLE 4-9 Monthly sales pattern

PPT 4-5 TABLE 4-10 Monthly cast receipts

PPT 4-5 TABLE 4-11 Component costs of manufactured goods

PPT 4-6 TABLE 4-12 Average monthly manufacturing costs

PPT 4-6 TABLE 4-13 Summary of all monthly cash payments

PPT 4-7 TABLE 4-14 Monthly cash flow

PPT 4-7 TABLE 4-15 Cash budget with borrowing and repayment provisions

PPT 4-8 TABLE 4-16

PPT 4-9 FIGURE 4-2 Development of a pro forma balance sheet

PPT 4-10 TABLE 4-17

PPT 4-11 TABLE 4-18

Chapter 4 - Outline LT 4-1 What 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

What is Financial Forecasting? LT 4-2 Financial forecasting is looking ahead to develop a financial plan for the future Very important for the strategic growth of a firm

2 Methods of Financial Forecasting: LT 4-3 – Using Pro Forma, or Projected, Financial Statements (more exact, time consuming) – Percent-of-Sales Method (less precise, easier to calculate) Often times these statements are required by lenders

3 Financial Statements for Forecasting LT 4-4 Pro Forma Income Statement (I/S) Cash Budget Pro Forma Balance Sheet (B/S) The first step is to develop a sales projection

Steps in a Pro Forma Income Statement (I/S) LT 4-5 Establish 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)

Determining Production Requirements LT 4-6 Projected Units Sales PLUS Desired Ending Inventory (EI) MINUS Beginning Inventory (BI) EQUALS Production Requirements (or Units to be Produced)

Percent-of-Sales Method 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