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Financial Forecasting

In: Business and Management

Submitted By rand1985
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Lecture notes chapter 4
Financial Forecasting

Author's Overview Developing pro forma statements is a fairly involved process. However, the rewards to students are high in terms of understanding the interaction of accounting data and financial forecasting. The development of pro forma financial statements is an integrative exercise, so there is little reward for a halfway approach. The percent-of-sales method, presented at the back of the chapter, is a second approach to financial forecasting. It has the virtue of being easily understood and quickly mastered, but it does not have the full validity of developing pro forma statements. It is really a matter of instructor preference.

Chapter Concepts * Financial forecasting is essential to the strategic growth of the firm. * The three financial statements for forecasting are the pro forma income statement, the cash budget and the pro forma balance sheet. * The percent-of-sales method may also be used for forecasting on a less precise basis. * The various methods of forecasting enable the firm to determine the amount of new funds required in advance. * The process of forecasting forces the firm to consider seasonal and other effects on cash flow. Annotated Outline and Strategy I. Need for Financial Planning A. Growth requires additions to assets; arrangements for financing such asset additions must be made in advance. B. Financial planning is necessary not only for success but for survival as well.
C. Lenders frequently require evidence of planning prior to making funds available. 1. II. The most comprehensive means for doing financial planning is...

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