Exam 11: Forecasting Financial Requirements

Explain the percentage-of-sales technique.

Briefly explain liquidity and its relationship to the current ratio.

Financial projections should be limited to the income statement to prevent information overload on lenders and investors.

The conventional measure of liquidity is the current ratio, which compares the current assets to current liabilities on a relative basis.

According to the text the first step in preparing a cash budget is

D&R Products forecast its cash requirements for year one at 4% of sales, resulting in a $10,000 cash need. The cash will be reflected in the balance sheet as _____.

Most firms of any size need working capital which includes the following except

High-tech businesses (such as computer manufacturers) generally require more assets than service businesses.

As a general rule an entrepreneur should maintain a current ratio of _____ or have a good reason for not doing so.

For the typical small firm the primary source of equity capital for financing growth is

Profits that are retained within the company rather than being distributed to the owners are referred to as retained earnings.

One real danger in over-reliance on a cash budget is that it may lead to

Many small firms have a tendency to overestimate the amount of capital the business requires.

After projecting sales the next step in forecasting a company's income is to project

No single planning document is more important in the life of a company than the

Most firms of any size need fixed assets which include

A firm should finance its growth in such a way as to maintain adequate

The conventional measure of a firm's liquidity is the

The debt ratio expresses the firm's debt as a percentage of equity.

The overall approach to forecasting is straightforward - entrepreneurs make _____ and, based on these _____, determine financial requirements.