Financial Statements - Forecast

1. Financial Statements - Forecast • Need? – crucial for management decisions • Systematic projection – expected actions of management – budgets, schedules, financial statements • Working plan – statistics, ratios, relationships, funds flows, conditions, decisions, activities • Coordinated thinking – future – same goals • Reduces emergency decisions, surprises • Sets standards of performance – measure, control • Anticipate upcoming financial needs, surprises

2. Financial Statements - Forecast • Pro Forma statements – future • Sales – beginning point – lots of research, effort, money – accurate as possible

3. Pro forma income statement • First statement projected – used for others • Cost behaviors – variable, fixed, etc. • Depreciation – newly purchased assets, interest – new debt • Estimate revenues, expenses, net income • Required financing • Pro forma balance sheet • Projections do not balance – indicates financing need – plug figure

4. Pro forma statement of cash flows • Projections of cash disbursements and cash received • Three categories – operating, financing, investing

5. Christy’s Lemonade Stand • Increase sales by 25% • Cogs – 25% • Labor – give brother a raise - $2.25 • Cash – minimum $5 • Inventory – 10% of sales • Thinking of buying a wagon - $13 • Depreciation – double • Will give Christy - $6

14. Assignment: Scamper Industries - Forecasting Case • Read Chapter 13