l05.fall10 - Lecture 5 page 30 FINANCIAL PLANNING Sales...

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Lecture 5 page 30 FINANCIAL PLANNING Sales Forecasting: Used to develop pro forma statements. Used to determine total external financing required. Sales Forecast techniques: 1. Internal forecasts a. Subjective forecasts b. Based on past experience and intuition c. “seat of the pants” approach 2. External forecasts a. Correlation forecasts 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? A firm has two sources of financing for these assets: 1. Debt, and 2. Equity. Total Assets = Debt + Equity 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 2009 Sales = $1,000,000 2010 forecast Sales forecast = $3,000,000 Assets Cash
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