1. Financial Forecasting
Chapter 4
Financial Forecasting

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

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

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

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

6. PPT 4-3
TABLE 4-4
Unit costs

7. PPT 4-3
TABLE 4-5
Total production costs

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

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

10. PPT 4-4
TABLE 4-8

11. PPT 4-5
TABLE 4-9
Monthly sales pattern

12. PPT 4-5
TABLE 4-10
Monthly cast receipts

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

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

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

16. PPT 4-7
TABLE 4-14
Monthly cash flow

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

18. PPT 4-8
TABLE 4-16

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

20. PPT 4-10
TABLE 4-17

21. PPT 4-11
TABLE 4-18

22. 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

23. 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

24. 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

25. 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

26. 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)

27. 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)

28. 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