CHAP6.

FORECASTING FOR FINANCIAL PLANNING

Introduction

In chap 4, we learnt about the SOURCE FOR INFORMATION (financial statements). In chap5,
we learnt how to INTERPRET THE INFORMATION (financial ratios)

We can interperete the information to find out:

- How one variable is compared to another

- Performance vs goal

- Past vs present

- Firm vs a similar firm

With these analysis, we can FORECAST the future of the firm for recommendations

Expl why forecasting is vital to bus success

Vital because it allows the firm to based on forecasts to

Develop new products

set production quotas

select financing sources

If a firm fails to forecast, it would not be able to adapt quickly enough and ultimately fall
behind in the fierce competition

Name the different ways to make a forecast

Forecast means to make assumptions about the future

3 general approaches: experience, probability, correlation

EXPERIENCE

PROBILITY

CORRELATION:

Example: A strong correlation between NUMBER OF RECENT GRADUATES and NEW-CAR SALES

forecast the number of new-car sales based on the recent graduates

 But, forecasts can be sometimes WRONG bascuase it is based on the PAST!

Desribe the financial statement forcasting process

Forecasted financial statements are referred to as PRO FORMA financial statements

Wha the firm will look like if the sales forecasts are indeed realized and management plans are
carried out

A. Budgets

1. Cash budget: Projected flow of cash in and out of the firm for a specific time period

1. Capital budget: Planned expenditures for major asset acquisitions

B. Produce Pro Forma financial statements

1. Example

2. Example

C. Support

1. Example

2.

3. Example

Prepare pro forma (projected) financial statements

A. Support

1. Example

4. Example

B. Support

1. Example

5. Example

C. Support

1. Example

6. Example

Exp the importance of analyzing forecasts

A. Restate topic

B. Summarize three main points

CHAP6. FORECASTING FOR FINANCIAL PLANNING Page 2 of 3

 C. Revisit introduction or tie all ideas together

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