kin356FinancialForecasting

kin356FinancialForecasting - Financial Forecasting 3/3/10...

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Financial Forecasting 3/3/10
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Today’s Outline 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
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What is Financial Forecasting? Financial forecasting is looking ahead to develop a financial plan for the future Very important for the strategic growth of a firm
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2 Methods of Financial Forecasting: – 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
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3 Financial Statements for Forecasting Pro Forma Income Statement (I/S) Cash Budget Pro Forma Balance Sheet (B/S) The first step is to develop a sales projection
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Process of Financial Forecasting
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Steps in a Pro Forma Income Statement (I/S) 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 )
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Table 1: Projected Sales, Jan- Jun 2005 Bats Balls Quantity 1,000 2,000 Sales  Price $30 $35 Sales  Revenue $30,000 $70,000 Total                         $100,000
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Determining Production Requirements Projected Units Sales PLUS Desired Ending Inventory (EI) MINUS Beginning Inventory (BI) EQUALS Production Requirements (or Units to be Produced)
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Table 2: Stock of Beginning Inventory Bats Balls Quantity 85 80 Cost $16 $20 Total  Value $1360 $3600 Total                         $4960
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Table 3: Production requirements for six months  Bats Balls Projected Unit  Sales (1) 1000 2000 Desired Ending  Inventory  (10% of  unit sales) 1100 2200 Beginning  Inventory (2) Units to  Produce
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Table 4: Unit Costs Bats Balls Materials $10 $12 Labor 5 6 Overhead 3 4 Total $18 $22
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This note was uploaded on 06/15/2011 for the course KIN 356 taught by Professor Warner during the Fall '09 term at University of Texas at Austin.

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kin356FinancialForecasting - Financial Forecasting 3/3/10...

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