Financial Forecasting
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Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights res What is Financial Forecasting? Financial forecasting is looking ahead to develop a financial plan for the future Very important for the strategic growth of a firm
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Transcript of Financial Forecasting
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
What is Financial Forecasting?
Financial forecasting is looking ahead to develop a financial plan for the future
Very important for the strategic growth of a firm
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2 Methods of Financial Forecasting:
– 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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3 Financial Statements for Forecasting
Pro Forma Income Statement (I/S) Cash Budget Pro Forma Balance Sheet (B/S)
The first step is to develop a sales projection
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Steps in a Pro Forma Income Statement (I/S)
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)
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Determining Production Requirements
Projected Units Sales PLUS
Desired Ending Inventory (EI) MINUS
Beginning Inventory (BI) EQUALS
Production Requirements
(or Units to be Produced)
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Percent-of-Sales Method
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
