Session 4-Forecasting & cash budgets

Session 4-Forecasting & cash budgets - Ch. 4:...

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Unformatted text preview: Ch. 4: Financial Forecasting, Planning and BudgetingPart 1 BM 301 Introduction to Finance BM 301 Introduction to Finance Comment on Devotionals Great opportunity while youre at BYU! Youll wish you had when youre away from here. MBA from BYU!! Headlines This Morning Adobe to Buy Web-Tracking Firm Omniture Deal Worth $1.8 Billion Will Allow Advertisers to More Closely Scrutinize Users Online Footprints WSJ 9/16/2009, B1 Congratulations to former Marriott School Business Management student Josh James and colleagues! How did Adobe decide $1,800,000,000 was the appropriate price to pay for Omniture? Mind Map Students question after last class: How does the current ratio really help me know if I have enough liquidity going forward ? Answer: It doesnt! Why? Financial statements are backwards- looking. As analysts/managers, we are really interested in what will happen in the future. Hence, we want to be able to make fundamental assumptions about the future progress of the firm and then forecast future results. Our goal is to understand the possible implications of todays decisions on tomorrows performance . Mind Map Learning objective: Create pro forma income statements and balance sheets using percent of sales forecasting (there are other methods) Identify the key variables in the forecasting process and the key limitations Understand the key interactions in the planning process Estimate a cash budget in good form Mind Map Remember: Forecasting is an art not a science Were just discussing one commonly used approach to financial statement forecasting It has limitations but it can give us some feel for where the organization is going Financial Forecasting Percent of Sales Method Step 1) Project sales revenues and expenses. (How would you do this?) Step 2) Estimate current assets and fixed assets necessary to support projected sales. (How would you do this?) Step 3) Analyze financing calculate Discretionary Financing Needed (DFN) So, Whats the Point? Growth requires increased investment But how much additional financing is needed? The forecast allows us to project the Discretionary Financing Needed (DFN) Possible sources: banks, sale of stocks or bonds, etc. It might also warn us that our dividend policy is unreasonable (or not) Alternatives to the Imprecise/Assumption- Dependent Process of Financial Forecasting Homer Simpson strategy hide under some coats and hope everything turns-out alright Get a job as a greeter at Wal-Mart Talk your parents into funding your college student status in perpetuity! Are We Making a Detailed Road Map of the Firms Future?...
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This note was uploaded on 04/05/2012 for the course BUS M 301 taught by Professor Jimbrau during the Fall '11 term at BYU.

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Session 4-Forecasting & cash budgets - Ch. 4:...

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