Business Administration - Accounting & Financial Planning FIN401 Chapter Notes - Chapter 4: Pro Forma, Financial Statement, Income Statement
20 Jan 2018
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Inputs: current financial statements, forecasts of key variables such as sales and interest rates. Planning model: equations specifying key relationships such as the cost of producing the forecasted sales and asset investment. Outputs: projected financial statements (pro formas, financial ratios, sources and uses of cash. Percentage of sales models: planning models in which sales forecasts are the driving variable and most other variables are proportional to sales. A balancing item (or plug): variable which adjusts to maintain the consistency of a financial plan: a short-cut, less exact, easier method of determining. Percent-of-sales method financing needs: assumes that b/s accounts will maintain a constant percentage relationship to sales, more sales will mean more assets which will require more financing formula, can be summarized by using the required new funding. The ,000 sales increase required new financing (rnf) of = Minus: increase in retained earnings ,000 x 6% x (1-50%)
