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Chapter 4

Chapter 4. Financial Forecasting. PPT 4-1. FIGURE 4-1 Development of pro forma statements. PPT 4-2. TABLE 4-1 Projected wheel and caster sales (first six months, 2005). PPT 4-3. TABLE 4-2 Stock of beginning inventory. PPT 4-3. TABLE 4-3 Production requirements for six months. PPT 4-3.

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Chapter 4

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  1. Chapter 4 Financial Forecasting

  2. PPT 4-1 FIGURE 4-1 Developmentof pro formastatements

  3. PPT 4-2 TABLE 4-1 Projected wheel andcaster sales (first sixmonths, 2005)

  4. PPT 4-3 TABLE 4-2 Stock of beginninginventory

  5. PPT 4-3 TABLE 4-3 Productionrequirements for sixmonths

  6. PPT 4-3 TABLE 4-4 Unit costs

  7. PPT 4-3 TABLE 4-5 Total production costs

  8. PPT 4-3 TABLE 4-6 Allocation of manufacturing costand determination of gross profits

  9. PPT 4-3 TABLE 4-7 Value of endinginventory

  10. PPT 4-4 TABLE 4-8

  11. PPT 4-5 TABLE 4-9 Monthly sales pattern

  12. PPT 4-5 TABLE 4-10 Monthly cast receipts

  13. PPT 4-5 TABLE 4-11 Component costs ofmanufactured goods

  14. PPT 4-6 TABLE 4-12 Average monthlymanufacturing costs

  15. PPT 4-6 TABLE 4-13 Summary of all monthlycash payments

  16. PPT 4-7 TABLE 4-14 Monthly cash flow

  17. PPT 4-7 TABLE 4-15 Cash budget with borrowing andrepayment provisions

  18. PPT 4-8 TABLE 4-16

  19. PPT 4-9 FIGURE 4-2 Development of a pro formabalance sheet

  20. PPT 4-10 TABLE 4-17

  21. PPT 4-11 TABLE 4-18

  22. Chapter 4 - Outline LT 4-1 • What is Financial Forecasting? • 2 Methods of Financial Forecasting • 3 Financial Statements for Forecasting • Steps in a Pro Forma Income Statement (I/S) • Determining Production Requirements • Percent-of-Sales Method

  23. What is Financial Forecasting? LT 4-2 • Financial forecasting is looking ahead to develop a financial plan for the future • Very important for the strategic growth of a firm

  24. 2 Methods of Financial Forecasting: LT 4-3 – Using Pro Forma, or Projected, Financial Statements (more exact, time consuming) – Percent-of-Sales Method (less precise, easier to calculate) Often times these statements are required by lenders

  25. 3 Financial Statements forForecasting LT 4-4 • Pro Forma Income Statement (I/S) • Cash Budget • Pro Forma Balance Sheet (B/S) The first step is to develop a sales projection

  26. Steps in a Pro FormaIncome Statement (I/S) LT 4-5 • Establish a sales projection • Determine a production schedule (or production requirements) • Compute other expenses • Determine profit by completing an actual pro forma income statement (I/S)

  27. Determining ProductionRequirements LT 4-6 Projected Units Sales PLUS Desired Ending Inventory (EI) MINUS Beginning Inventory (BI) EQUALS Production Requirements (or Units to be Produced)

  28. Percent-of-Sales Method LT 4-7 A short-cut, less exact, easier method of determining financing needs (The “quick and dirty” approach) Assumes that B/S accounts will maintain a constant percentage relationship to sales Assets / Current Sales = % of Sales

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