Lec5 - Lecture 5 page 30 FINANCIAL PLANNING Sales...

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Lecture 5 page 30 FINANCIAL PLANNING Sales Forecasting: beginning Used to develop pro forma statements. Used to determine total external financing required. Sales Forecast techniques: 1. Internal forecasts – talking to sales reps a. Subjective forecasts b. Based on past experience and intuition c. “seat of the pants” approach 2. External forecasts a. Correlation forecasts +1 > p > -1 b. Base sales forecast on one or more other variables (e.g., sales as a function of GNP, interest rates, population) Pro Forma Statements with percent-of-sales forecasting Pro formas start with the sales forecast. Why is a sales forecast required? As sales change, the company’s need for assets change A firm has two sources of financing for these assets: 1. Debt, and 2. Equity. Total Assets = Debt + Equity A=D+E Managers need a way to estimate how much assets will increase when sales increase so that financing (debt or equity) can be arranged. - Richard T. Bliss, Babson University and Terry D. Nixon, Miami University
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Lecture 5 page 31 Pro Forma Statements (An Example) Balance Sheet 2011 Sales = $1,000,000 2012 forecast Sales forecast = $3,000,000 Assets Cash $5,000 .5% 15,000 Marketable Securities 10,000
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Lec5 - Lecture 5 page 30 FINANCIAL PLANNING Sales...

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