Exam 4: Financial Planning and Forecasting

Historically, in the rural retail grocery industry, cost of goods sold averages 75% of sales. If next year's sales are expected to be $1,600,000, the gross profit forecast would be $1,200,000.

Historically, in the retail jewelry industry, cost of goods sold averages 40% of sales. If next year's sales are expected to be $1,600,000, the gross profit forecast would be

Operating financial plans are planned short-term financial actions and the anticipated financial impact of those actions.

In April, a firm had an ending cash balance of $35,000.$40,000 and total cash disbursements of $50,000. The minimum cash balance required by the firmis $25,000. At the end of May, the firm

Required financing and excess cash are typically viewed as short-term. Therefore, required financing may be represented by a line of credit and excess cash is assumed to be invested in a redeemable guaranteed investment certificate.

Under the judgmental approach for developing a pro forma balance sheet, the "plug" figurerequired to bring the statement into balance may be called the

In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000,depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of$500. for August is

A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2004. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions. A. The firm estimates sales of $1,000,000. B. The firm maintains a cash balance of $25,000. C. Accounts receivable represents 15 percent of sales. D. Inventory represents 35 percent of sales. E. A new piece of mining equipment costing $150,000 will be purchased in 2004. Total depreciation for 2004 will be $75,000. F. Accounts payable represents 10 percent of sales. G. There will be no change in notes payable, accruals, and common stock. H. The firm plans to retire a long term note of $100,000. I. Dividends of $45,000 will be paid in 2004. J. The firm predicts a 4 percent net profit margin. Balance Sheet General Talc Mines December 31, 2003 Assets Cash \ 25,000 Accounts receivable 120,000 Inventories 300,000 -\ldots... Total current assets \ 445,000 Net fixed assets \ 500,000 -\ldots... Total assets \9 45,000 Liabilities and stockholders' equity Accounts payable \ 80,000 Notes payable 350,000 Accruals 50,000 -\ldots... Total current liabilities \ 480,000 Long-term debts 150,000 Total liabilities \ 630,000 Stockholders' equity Common stock \ 180,000 Retained earnings 135,000 Total stockholders' equity \ 315,000 Total liabilities and stockholders' equity \ 945,000 -The pro forma current liabilities amount 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 -The firm has a negative net cash flow in the month(s) of (See Figure 4.1)

A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2004. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions. A. The firm estimates sales of $1,000,000. B. The firm maintains a cash balance of $25,000. C. Accounts receivable represents 15 percent of sales. D. Inventory represents 35 percent of sales. E. A new piece of mining equipment costing $150,000 will be purchased in 2004. Total depreciation for 2004 will be $75,000. F. Accounts payable represents 10 percent of sales. G. There will be no change in notes payable, accruals, and common stock. H. The firm plans to retire a long term note of $100,000. I. Dividends of $45,000 will be paid in 2004. J. The firm predicts a 4 percent net profit margin. Balance Sheet General Talc Mines December 31, 2003 Assets Cash \ 25,000 Accounts receivable 120,000 Inventories 300,000 -\ldots... Total current assets \ 445,000 Net fixed assets \ 500,000 -\ldots... Total assets \9 45,000 Liabilities and stockholders' equity Accounts payable \ 80,000 Notes payable 350,000 Accruals 50,000 -\ldots... Total current liabilities \ 480,000 Long-term debts 150,000 Total liabilities \ 630,000 Stockholders' equity Common stock \ 180,000 Retained earnings 135,000 Total stockholders' equity \ 315,000 Total liabilities and stockholders' equity \ 945,000 -If General Talc Mines cannot raise the external financing required through traditional credit channels, the firm may (See Figure 4.3)

The key input to any cash budget is

The primary purpose in preparing pro forma financial statements is

The key input to the short-run financial planning process is

In cash budgeting, the impact of amortization is reflected in the level of cash outflow represented by the tax payments.

Since amortization and other non-cash charges represent a scheduled write-off of an earlier cash outflow, they should NOT be included in the cash budget.