Textbook Notes #4 - sept 27.docx

2 Pages
Unlock Document

Western University
Business Administration
Business Administration 1220E

Nicole Wallenburg Business 1220 12-04-23 Business 1220 – Textbook Notes #4 Projected Financial Statements There are three basic reasons for preparing projected statements: 1. To forecast financial performance or position (e.g., What will earnings likely be next year?) 2. To examine the interrelationship of financial policies with changes in marketing and production policies (e.g., If sales double, how much more money will be required in inventory investment?) 3. To forecast cash needs, debt needs, capacity to expand operations and others (e.g., How large will the bank loan have to be six months from now?) A projected statement is only as good as the estimates, assumptions, and judgement that went into its preparation. Three sources of information can be used to prepare projected statements. 1. Managers’ estimates (e.g., a sales forecast) 2. Past financial relationships (e.g., financial ratios of the previous year) 3. Assumptions as to what might occur Projected Statement of Earnings Always begin a set of projected statements with the statement of earnings, followed by the statement of retained earnings, and then the balance sheet. Guidelines… 1. Estimating a new sales volume is the first and most important step. Use managers’ estimates and/or past growth trends as guidelines 2. Use the profitability ratio analysis to estimate cost of goods sold, gross profit, and operating expenses. Modify these estimates
More Less

Related notes for Business Administration 1220E

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.