Exam 10: Forecasting Financial Statements

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

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 companies would most likely not be able to increase prices in the near future?

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Card Sharks,Inc. Card Sharks,Inc.sells baseball cards and other memorabilia.The company tries to maintain a cash balance equivalent to approximately 30 days of sales.Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%. -Given the information provided about Card Sharks,what is the company's 2012 projected year-end cash balance?

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

Realistic expectations are ____________________ and ____________________.

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?

Financial ratio,percentage,and trend comparisons can be distorted by all of the following except:

All of the following are true regarding projected financial statements except:

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?

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:

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

The formula for forecasting inventory is ____________ /365 X.

Simmons Company These data represent a summary of your first-iteration forecast amounts for Year 1.Simmons uses dividends as a flexible financial account. A.See the information for Simmons Company. Compute the amount of dividends you can assume that Simmons will pay in order to balance your projected balance sheet.Present the projected balance sheet. B.See the information for Simmons Company. Now assume that Simmons pays common shareholders a dividend of $25 in Year +1.Also assume that Simmons uses long-term debt as a flexible financial account,increasing borrowing when it needs capital and paying down debt when it generates excess capital.For simplicity,assume that Simmons pays 10.0 percent interest expense on the ending balance in long-term debt for the year and that interest expense is tax deductible at Simmons' average tax rate of 20.0 percent. Present the projected income statement and balance sheet for Year +1.(Hint: Because of the circularity between interest expense,net income,and debt,several iterations may be needed to balance the projected balance sheet and to have the projected balance sheet articulate with net income.You may find it helpful to program a spreadsheet to work the iterative computations. )

A firm in a mature industry with little expected change in its market share might anticipate volume increases equal to the growth rate in the _________________________ within its geographic markets.

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

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

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

One caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances.What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?