fm14 17 - be used when everything does not increase...

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Mini Case: 14 - 17 g. Why does the forecasted financial statement approach produce a somewhat different AFN than the equation approach? Which method provides the more accurate forecast? Answer: The difference occurs because the AFN equation method assumes that the profit margin remains constant, while the forecasted balance sheet method permits the profit margin to vary. The balance sheet method is somewhat more accurate, but in this case the difference is not very large. The real advantage of the balance sheet method is that it can
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Unformatted text preview: be used when everything does not increase proportionately with sales. In addition, forecasters generally want to see the resulting ratios, and the balance sheet method is necessary to develop the ratios. In practice, the only time we have ever seen the AFN equation used is to provide (1) a “quick and dirty” forecast prior to developing the balance sheet forecast and (2) a rough check on the balance sheet forecast....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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