Exam 11: Forecasting Financial Requirements

James is preparing his forecasts for the coming year.  What kind of scenarios should he prepare when forecasting and budgeting?

Profits reward an owner for investing in a company and constitute a primary source of financing for future growth.

The greater a firm's sales, the greater need for financing because of greater _____ requirements.

The projection of profits, asset requirements, financing requirements and cash flows are essential in determining whether a venture is economically viable.

Investors would like to know if Arthur's new business will have adequate cash flows.  Arthur can provide this information in

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.

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

Entrepreneurs determine financial requirements based on ________.

The method of forecasting asset requirements is called the ____________ technique.

Bowz 4 Kidz is a new business that Ellie has started out of her home utilizing an online business model. In developing pro forma financials, what general questions do the statements need to answer and how will they be applied to Ellie's business?

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

Financial forecasts are required by lenders since they will want to know how they will be paid back; investors will use the forecasts to value the company.

What are the categories that constitute working capital versus net working capital?

Andrea is working on forecasting her financial statements for her consulting business.  Discuss three suggestions for Andrea to make her forecasting more effective.

A line of credit is a short-term loan used in a business to help with financing fixed assets.

The cost of goods sold are always fixed.

Pro forma financial statements are statements that have been prepared in the proper format by a CPA.

Mark follows the cash budget like it was carved in stone.  He has fallen prey to the one real danger in over-reliance on a cash budget:

Briefly explain liquidity and its relationship to the current ratio .