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Chapter 17 Financial Planning and Forecasting
Chapter 17 Financial Planning and Forecasting
CHAPTER 17
Financial Planning and Forecasting
Pro-Forma Financial Statements
Forecasting
Forecast sales
Project the assets needed to
support sales
Project internally generated funds
Project outside funds needed
Decide how to raise funds
See effects of plan on ratios and
stock price
Finance
Department
Production
(capacity, schedules)
Accounting
(financial statements,
depreciation, taxes)
SALES
FORECAST
Forecasting sales
Sales Forecast
Under-optimistic
Over-optimistic
Low profit
Low rate of return on equity
Low free cash flow
Depressed stock price
Growth Rate
94 95
96 97 98
99 00 01 02
03
Time
94 95
96 97 98
99 00 01 02
03
Time
94 95
96 97 98
99 00 01 02
03
Time
2009
2010
sales. The exception here is notes payables (shortterm borrowings) that changes as the firm pays it
down or makes an additional borrowing.
Long-term liabilities and equity accounts change as a
described models.
First, interest expense was not accounted for. This is
role.
When a firm is not operating at full capacity, sales may
(More)
Implications of EFN
Lumpy Assets
Assets
1,500
1,000
500
500
1,000
2,000
Sales
Regression Analysis
for Asset Forecasting
Relationship between
type of asset and
sales is linear.
Get historical data on
a good company, then
fit a regression line to
see how much a given
sales increase will
require in way of
asset increase.
Excess Capacity
Adjustments