Downloaded 259 times
Uploaded bysajid ghafoor
Financial Forecasting
1) The document discusses financial forecasting methods for projecting sales, assets, liabilities, equity, and discretionary financing needs for the current and next year. 2) It forecasts that sales will be $32 million currently and $40 million next year, with net income at 5% of sales and dividends at 50% of earnings. 3) Using the percentage of sales method, it projects balance sheet accounts and calculates that $3 million in additional discretionary financing will be needed next year to support the projected increase in assets.
More Related Content
Similar to Financial Forecasting
Financial Forecasting
- 1.
- 2. 1) Project sales revenues and expenses. 2) Estimate current assets and fixed assets necessary to support projected sales. Percent of sales forecast Financial Forecasting
- 3. Suppose this yearssales will total $32 million . Next year, we forecast sales of $40 million . Net income should be 5% of sales. Dividends should be 50% of earnings. Percent of Sales Method
- 4. This year % of $32m Assets Current Assets $8m 25% Fixed Assets $16m 50% Total Assets $24m Liab. and Equity Accounts Payable $4m 12.5% Accrued Expenses $4m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $15m Common Stock $7m n/a Retained Earnings $2m Equity $9m Total Liab & Equity $24m
- 5. Next year % of $40m Assets Current Assets $10m 25% Fixed Assets $20m 50% Total Assets $30m Liab. and Equity Accounts Payable $5m 12.5% Accrued Expenses $5m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $17m Common Stock $7m n/a Retained Earnings Equity Total Liab & Equity
- 6. Next year’s projectedretained earnings = last years $2 million , plus: projected net income cash dividends sales sales net income $40 million x .05 x (1 - .50) = $2 million + $1 million = $3million x x ( 1 - ) Predicting Retained Earnings:
- 7. Next year % of $40m Assets Current Assets $10m 25% Fixed Assets $20m 50% Total Assets $30m Liab. and Equity Accounts Payable $5m 12.5% Accrued Expenses $5m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $17m Common Stock $7m n/a Retained Earnings $3m Equity Total Liab & Equity
- 8. Next year % of $40m Assets Current Assets $10m 25% Fixed Assets $20m 50% Total Assets $30m Liab. and Equity Accounts Payable $5m 12.5% Accrued Expenses $5m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $17m Common Stock $7m n/a Retained Earnings $3m Equity $10m Total Liab & Equity $27m
- 9. Next year % of $40m Assets Current Assets $10m 25% Fixed Assets $20m 50% Total Assets $30m Liab. and Equity Accounts Payable $5m 12.5% Accrued Expenses $5m 12.5% Notes Payable $1m n/a Long Term Debt $6m n/a Total Liabilities $17m Common Stock $7m n/a Retained Earnings $3m Equity $10m Total Liab & Equity $27m How much Discretionary Financing will we Need?
- 10. Predicting Discretionary FinancingNeeds Discretionary Financing Needed = projected projected projected total - total - owners’ assets liabilities equity $30 million - $17 million - $10 million = $3 million in discretionary financing
- 11. g* = ROE(1 - b) where b = dividend payout ratio (dividends / net income) ROE = return on equity (net income / common equity) or net income sales common equity sales assets assets ROE = x x Sustainable Rate of Growth