Forecasting___cash_budgets_handout

Forecasting___cash_budgets_handout - Ch 4 Financial...

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Unformatted text preview: Ch. 4: Financial Forecasting, Ch. 4: Financial Forecasting, Planning and Budgeting Planning and Budgeting • 1) Project sales revenues and expenses. • 2) Estimate current assets and fixed assets necessary to support projected sales. • Percent of sales forecast Financial Forecasting So, What’s the Point??? • Growth requires increased investment. • The Percent of Sales forecast allows us to determine the “Discretionary Financing Needed” (DFN) • AKA: External Financing Needed (EFN) Are we making a detailed road map of the firm’s future??? This is a first step in the planning process • Big-Time GIGO • Goal: Avoid stupid mistakes Forecasting the Financial Forecasting the Financial Statements Statements • Q: What type of accounts vary with sales • A: many asset accounts and some current liability accounts • Spontaneous vs. non- spontaneous • Special cases: interest and Retained earnings “ “ Special Case” Line Items Special Case” Line Items • Interest: assume no change unless otherwise directed • RE: New RE = Old RE + NI – Div • WRITE THIS DOWN!! • RE must be independently forecast Percent of Sales Method Percent of Sales Method • Suppose this years sales will total $32 million. • Next year, we forecast sales of $40 million. • Net income should be 5% of sales (i.e., net margin = 5%). • Dividends = 50% of earnings. This year % of $32m Assets Current Assets $8m 25% Fixed Assets $16m 50% Total Assets $24m Liab. and Equity Accounts Payable $4m 12.5% Accrued Expenses $4m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $15m Common Stock $7m n/a Retained Earnings $2m Equity $9m Total Liab & Equity $24m Next year % of $40m Assets Current Assets 25% Fixed Assets 50% Total Assets Liab. and Equity Accounts Payable 12.5% Accrued Expenses 12.5% Notes Payable n/a Long Term Debt n/a Total Liabilities Common Stock n/a Retained Earnings Equity Total Liab & Equity Next year % of $40m Assets Current Assets $10m 25% Fixed Assets 50% Total Assets Liab. and Equity Accounts Payable 12.5% Accrued Expenses 12.5% Notes Payable n/a Long Term Debt n/a Total Liabilities Common Stock n/a Retained Earnings Equity Total Liab & Equity Next year % of $40m Assets Current Assets $10m 25% Fixed Assets $20m 50% Total Assets $30m Liab. and Equity Accounts Payable $5m 12.5% Accrued Expenses $5m 12.5% Notes Payable $1m n/a Long Term Debt...
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This note was uploaded on 03/06/2012 for the course BUS M 201 taught by Professor Mcgregor during the Fall '11 term at BYU.

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Forecasting___cash_budgets_handout - Ch 4 Financial...

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