Exam 4: Financial Planning and Forecasting

The best way to adjust for the presence of fixed costs when using a simplified approach for pro forma income statement preparation is to break the firm's historical costs into fixed, semi-variable, and variable components and make the forecast using this relationship.

A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement-called the external financing required-of $230,000. The firm should prepare to

A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement-called the external financing required-of negative $250,000. The firm may prepare to

__________forecast is based on the relationships between the firm's sales and certain economic indicators.

For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma incomestatement tends to

Generally, firms that are subject to high degree of____________ , relatively short production cycles, orboth tend to use shorter planning horizons.

The use of past cost and expense ratios generally tends to overstate profits when sales are increasing and understate profits when sales are decreasing.

Pro forma statements are used for

The primary purpose in preparing pro forma financial statements is

Of the following, generally the easiest to estimate are

The___________ method of developing a pro forma balance sheet estimates values of certain balancesheet accounts while others are calculated. In this method, the firm's external financing is used as abalancing, or plug, figure.

The key output(s) of the short-run financial planning process are a(n)

The net cash flow for February is____________ Sportif, Inc. Month Sales Disbursements January \ 5,000 \ 6,000 February 6,000 \ 7,000 March 10,000 \ 4,000 April 10,000 \ 5,000 May 10,000 \ 5,000

A firm has actual sales in November of $1,000 and projected sales in December and January of$3,000 and $4,000, respectively. The firm makes 10 percent of its sales in cash, collects 40 percent ofits sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January

If all customers take 15 days (one-half month) to pay their credit accounts, cash flows from sales inJune would be $150,000; May and June sales budgets are $100,000 and $200,000, respectively.

If all purchases of goods for sale are on 45 day (one and one-half months) credit terms with the supplier, cash flows to purchases in June would be $425,000; March, April, May, and June purchases budgets are $350,000, $400,000, $450,000, and $450,000, respectively.

Pro forma statements provide the financial manager with the amount, if any, of external financingrequired to support a given level of sales as well as a basis for analyzing in advance the level ofprofitability and overall financial performance of the firm in the coming year.

Generally, firms that are subject to high degrees of operating uncertainty, relatively short production cycles, or both tend to use a shorter planning horizon.

Strategic financial plans are planned long-term financial actions and the anticipated financial impact of those actions.

Sales forecasts, cash budgets, and pro forma financial statements are the key outputs of financial planning.