IUB BUS-F 300 - Exam 3 Study Guide (8 pages)

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Exam 3 Study Guide

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Exam 3 Study Guide


Study Guide
Indiana University, Bloomington
Bus-F 300 - Intro Financial Management
Intro Financial Management Documents

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BUS F 300 1st Edition Exam 3 Study Guide Ch 4 Financial Forecasting Most comprehensive means of financial forecasting is to develop a series of pro forma financial statements With these statements firm can estimate its future level of receivables inventory payables and other corporate accounts as well as its anticipated profits and borrowing requirements Use a six month time frame to facilitate analysis but could be extended to a year or longer Development of pro forma statements will provide projection of profit the firm anticipates making over a certain period of time 1 Establish sales projection 2 Determine a production schedule and the associated use of new material direct labor and overhead to arrive at gross profit projected quantity of unit sales Desired ending inventory Beginning inventory Production requirements Value of ending inventory Beginning inventory value total production costs Total inventory available for sales Cost of goods sold Ending inventory 3 Compute other expenses 4 Determine profit by completing the actual pro forma statement Cash Budget Translate the pro forma income statement into cash flows of smaller and more precise time frames to anticipate seasonal and monthly patterns of cash inflow and outflow because generation of sales and profits does not necessarily mean there will be adequate cash on hand Primary purpose is to allow firm to anticipate the need for outside funding at the end of each month Cash receipts monthly cash collections inflow Cash payments Monthly costs associated with inventory manufactured during the period material labor and overhead and disbursements for general and administrative expenses interest payments taxes and dividends and for any new plant and equipment Equal monthly costs bc assume we are employing level monthly production to ensure maximum efficiency even though sales volume varies month to month Net cash flow difference between monthly receipts and payments Pro forma balance sheet represents cumulative

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