Exam 10: Forecasting Financial Statements

All of the following statements are true regarding ratios and forecasts except:

Financial statement forecasts should rely on _________________________ across financial statements.

Financial statement forecasts should rely on ____________________ within financial statements.

Firms which have differentiated ___________________________________ for its products may have a greater potential to increase prices.

As a firm progresses through the growth life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?

Office Mart,Inc.sells numerous office supply products through a national distribution center.The company has focused on maintaining a cash balance equivalent to approximately 14 days of sales.Sales in 2010 amounted to $125,980,673 and the company expects growth in 2011 of 11% and in 2012 of 15%.Given this information determine Office Mart,Inc.'s projected year-end cash balance for 2011 and 2012.

For some types of assets,such as accounts receivable,asset growth typically ____________________ future sales growth.

Based on the following statement from the text," to develop forecasts of individual operating assets and liabilities,you must first determine the underlying operating activities that drive them".Explain what those underlying activities are?

If a company has very low operating leverage (i.e.a low proportion of fixed costs in the cost structure)and no changes are expected in operations

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following types of companies would most likely be able to increase prices?

Common-size financial statements recast each statement item as 

Techtronics is a leader in manufacturing computer chips,which is very capital-intensive.Because the production processes in computer chip manufacturing require sophisticated and rapidly changing technology,production and manufacturing assets in the chip industry tend to have relatively short useful lives. The following summary information relates to Techtronics' property,plant,and equipment for 2009 and 2010: Techtronics (amounts in millions) Property, Plant, and Equipment, at cost \ 46,052 \ 48,088 Accumulated Depreciation \ (29,134) \ (30,544) Property, Plant, and Equipment, net \ 16,918 \ 17,544 Depreciation Expense \ 4,360 Capital Expenditures, net \ 5,200 Required Assume that Techtronics depreciates all property,plant,and equipment using the straight-line depreciation method and zero salvage value.Assume that Intel spends $6,000 on new depreciable assets in Year 1 and does not sell or retire any property,plant,and equipment during Year1. a.Compute the average useful life that Techtronics used for depreciation in 2010. b.Project total depreciation expense for Year 1 using the following steps: (i)project depreciation expense for Year 1 on existing property,plant,and equipment at the end of 2010;(ii)project depreciation expense on capital expenditures in Year 1 assuming that Intel takes a full year of depreciation in the first year of service;and (iii)sum the results of (i)and (ii)to obtain total depreciation expense for Year 1. c.Project the Year 1 ending balance in property,plant,and equipment,both at cost and net of accumulated depreciation.

The following information about Douglas Corp.'s Accounts Receivable and Sales are presented below: Year 2012-Bepining Balance of $\mathrm { A } / \mathrm { R } = \$ 791 \mathrm { M }$ Year 2012 -Eaflin Balance of $\mathrm { A } / \mathrm { R } = \$ 807 \mathrm { M }$ Year $2012 -$ Sales $= 33,002 \mathrm { M }$ A5sumptians: Sales growth will be equal to $6 \%$ per year A/R turnover will stay canstant thraughout the farecast periot Required: a.Using this information,forecast Douglas Corp.'s the growth in Accounts Receivable for years 2013-2017. b.What problem does a constant A/R turnover assumption cause? c.Provide a solution to the problem caused by a constant A/R turnover assumption.

Nichols and Wahlen's 2004 study showed that superior forecasting provides the potential to earn superior security returns.Nichols and Wahlen's findings indicate

The formula for forecasting inventory is ____________ /365 X .

Projected financial statements can be used to assess the sensitivity of all of the following except:

When projecting operating expenses it is important to determine the mix of fixed and variable costs,one clue suggesting the presence of fixed costs is

A firm in transition from the high growth to the mature phase of its life cycle,or a firm with significant technological improvements in its production processes,might expect increases in ______________________________ but decreases in sales prices per unit.

The objective of forecasting is to develop

In developing forecasts of expenses the analyst must take into consideration that expenses can be broken down into ________________________ or ______________________ components.