Operating financial plans are planned short-term financial actions and the anticipated financial impact of those actions. The sales forecast and various forms of operating and financial data are the key outputs of the short-run (operating) financial planning.
What are the two key weaknesses of the simplified approaches to preparing pro forma statements?
3-18 Simplified approaches to preparing pro forma statements have two basic weaknesses: 1) the assumption that the firm’s past financial condition is an accurate predictor of its future and 2) the assumption that the values of certain variables can be forced to take on desired values.
What are the key inputs for preparing pro forma income statements using the simplified approaches?
Question 1The key inputs for preparing pro forma income statements using the simplified approaches are the a. sales forecast for the preceding year and financial statements for the coming year. b. sales forecast for the coming year and the cash budget for the preceding year.
What is the primary purpose in preparing pro forma financial statements?
The purpose of pro forma financial statements is to facilitate comparisons of historic data and projections of future performance.
What is the most important ingredient in developing a firm’s financial plan?
10) The key ingredient in a firm’s financial planning is the sales forecast.
What is the key input to any cash budget?
A cash budget is all about liquidity, and therefore forecasting what available liquidity will be required over a given period is the primary input for forecasting budgets.
What is the significance of the plug figure external financing required?
The significance of the “plug” figure, external financing required is that it balances the financial statements in an easy and simplified manner. Differentiate between strategies associated with positive values and with negative values for external financing required.
Which of the following is an example of non cash charges?
A non-cash charge is a write-down or accounting expense that does not involve a cash payment. Depreciation, amortization, depletion, stock-based compensation, and asset impairments are common non-cash charges that reduce earnings but not cash flows.
What is the first step of the six step financial planning process?
The financial planning process is a logical, six-step procedure: (1) determining your current financial situation. (2) developing financial goals. (3) identifying alternative courses of action.
What is the primary tool for short-term financial forecasting?
The cash budget is one of the primary tools used in short-term financial planning for cash flow.
Why does the presence of fixed costs lead to errors in a pro forma income statement constructed using the percent of sales method What is a better method?
Why does the presence of fixed costs lead to errors in a pro forma income statement constructed using the percent-of-sales method? This understates profits when sales are increasing and overstate profits when sales are decreasing.
