451: CH18-FINANCIAL MODELING AND PRO FORMA

ANALYSIS
Study online at quizlet.com/_4ma96

If a firm pays
dividends, what
happens to it's
Internal Growth
Rate?

reduced

In financial
Planning, what do
we forecast?

1. financial statements
2. cash flows

internal growth
rate

1. the maximum growth the firm can

sustain without external financing
2. it is the growth the firm can support
by reinvesting it's earnings

Internal Growth
Rate, what must a
firm do to grow
faster?

1. reduce payout ratio

2. external financing

net new financing

the amount of additional external

financing a firm needs to secure to pay
for the planned increase of assets

percentage of
sales method

a forecasting method that assumes that

as sales grow, many income statement
and balance sheet items will grow,
remaining the same percentage of sales

7.

plow back ratio

retention rate, net income retained after

tax

8.

the plug

the amount of new new financing that

needs to be added to the liabilities and
equity side of the pro forma balance
sheet to make it balance

Second Pass Pro

Forma

Pro Forma that includes The Plug

sustainable
growth rate

1. the maximum growth rate the firm can

sustain without issuing new equity or
increasing or increasing its debt to
equity ratio.

Sustainable
growth rate, what
must a firm do to
grow faster

1. reduce payout
2. issue new debt
3. raise new equity

What are is the

tool used for
Financial
Planning?

Financial Modeling

What does it
mean when assets
are greater than
liability and
equity?

new financing is needed, the firm must

borrow or issue new equity to fund the
shortfall

1.

2.

3.

4.

5.

6.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

What does it mean when

liability and equity are
greater than assets?

It means that the firm has

generated more cash than
what they planned to consume

What does the internal

and sustainable rate tell
us?

1. useful in alerting you to need

to plan for external financing
2. it cannot tell you your
planned growth increases of
decreased the firm's value

What is assumed in the

sustainable growth rate?

1. some external financing

2. no new equity is issued
3. issuing as much new debt as
can be supported by those
retaining

What is optimal Timing

and Delay Option

when is it a good time to

expand or delay expansion

What is the goal of

financial managers?

1. maximize the value of

stockholders' stake