Review 2

Review 2 - BusinessManagement301 Day8 MidtermExamReview...

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Business Management 301 Day 8 Midterm Exam Review July 14, 2011
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Forecasting Forecasting
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Key Point:  Growth requires increased  investment… But efficient growth requires you to estimate  the investment required in advance . The Percent of Sales forecast allows us to  determine the “Discretionary  Financing  Needed” (DFN) or “plug” figure. AKA:  External Financing Needed (EFN) Question:  What if you have a negative  DFN? Percent of Sales Forecasting
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Percent of Sales Forecasting 1) Project sales  revenues  and  expenses . 2) Estimate  current assets  and  fixed assets  necessary to  support projected sales. 3)  Analyze financing/calculate DFN  or the “plug” figure. Note:  You must identify which  accounts vary with sales by  differentiating between  Spontaneous and Non-Spontaneous  accounts. 
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Spontaneous Accounts What about Fixed assets? Sometimes… Excess Capacity? You must read the problem statement carefully! Most Current Assets  (usual assumption) Accounts Payable Accruals  (accrued wages, etc.)
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Non-Spontaneous Accounts Notes Payable Long-Term Liability Accounts Common Stock Interest (see next slide) Retained earnings (see next  slide) Financing  Accounts  (BSD)
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“Special Case” Line Items RE:  Old RE + Change in RE RE:  End RE = Beg RE + NI – Dividends RE:  Old RE + [Projected Sales x Net Margin x (1-Payout Ratio)] Payout Ratio:  Dividend/NI Plowback (Retention) Ratio:  1-Payout Ratio Note:  Retained Earnings must be  independently forecasted! Interest:  assume no change unless otherwise  directed (i.e. base on previous year end).
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Make-a-Friend Exercise In 2010 a firm had  $5,000,000  in sales, but  expects  $6,250,000  in 2011.   Net margin in 2011 will be  7%  and the firm  pays out  45%  of earnings in dividends.   Assume the firm is already at 
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This note was uploaded on 11/17/2011 for the course BUS M 301 taught by Professor Jimbrau during the Summer '11 term at BYU.

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Review 2 - BusinessManagement301 Day8 MidtermExamReview...

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