Topic 4: Financial Forecasting Flashcards Preview

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Flashcards in Topic 4: Financial Forecasting Deck (10)
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1
Q

What is DFN?

A

Discretionary Financing Needed; a.k.a. EFN (External Financing Needed)

2
Q

What is the purpose of financial forecasting?

A

Determine how much $ the firm will need in the future.

3
Q

What is the main goal of financial forecasting?

A

Understand the implications of today’s decisions on tomorrow’s performance.

4
Q

Name the 6 steps of the % of sales method.

A
  1. Project Sales Revenue & Expenses (given)
  2. Forecast the change in spontaneous B.S. accounts (determine the change in assets, given the change in sales).
  3. Deal with Discretionary Accounts

4.

5
Q

Use % of Sales Method IF:

A

The item is spontaneous (varies directly with sales).

*If discretionary (non-spontaneous), find additional info. or make a reasonable assumption.

6
Q

The pro forma I.S. is linked to the B.S. in which 3 ways?

A
  1. Retained Earnings from the forecasted income statement increase the forecasted equity account on the balance sheet.
  2. Depreciation from the forecasted I.S. decreases the forecasted Fixed Assets (PP&E) on the B.S.
  3. Forecated Interest expense on the I.S. depends on the interest-bearing liabilities on the forecasted B.S.
7
Q

New Retained Earnings =

A

Forecasted Net Income - Forecasted Dividends Paid

8
Q

New Net Fixed Assets (PP&E) =

A

Prior Net Fixed Assets - Forecasted Depreciation + Forecasted CAPEX

9
Q

Examples of Discretionary Accounts

A

Long-term debt, notes payable, common stock

*All deal with the financing of the firm

10
Q

Are Fixed Assets usually spontaneous or discretionary? What’s the exception?

A

Usually discretionary.

If the firm is operating at full capacity, they may adjust spontaneously.