Forecasting Financial 
               Forecasting Financial 
               Requirements
               Requirements
                Chapter 11
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           distributed with a certain product or service or otherwise on a password-protected website for classroom use. 
                Learning Goals:
                Learning Goals:
                
                   Describe the purpose for financial 
                   forecasting.
                
                   Develop a pro forma income statement 
                   to forecast a new venture’s profitability.
                
                   Determine a company’s asset and 
                   financing requirements based on a pro 
                   forma balance sheet.
                
                   Forecast a firm’s cash flows.
                
                   Provide some suggestions for effective 
                   financial forecasting.
           © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license 
           distributed with a certain product or service or otherwise on a password-protected website for classroom use. 
                   The Purpose of Financial 
                   The Purpose of Financial 
                                    Forecasting
                                    Forecasting
                
                   Pro Forma Financial Statements
                    Project a firm’s financial performance 
                       and condition
                    Purposes of pro forma statements:
                      1.How profitable is the firm be expected to 
                        be, given the projected sales levels and 
                        the expected sales–expense relationships?
                      2.How much and what type of financing 
                        (debt or equity) will be needed to finance 
                        the firm’s assets?
    © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 
    duplicated, in whole or in part, except for use as permitted in a license distributed with a 
           11–4
    certain product or service or otherwise on a password-protected website for classroom 
    use.
                   The Purpose of Financial 
                   The Purpose of Financial 
                          Forecasting (cont.)
                           Forecasting (cont.)
                    Purposes of pro forma statements: 
                       (cont.)
                      3. Will the firm have adequate cash flows? 
                          If so, how will they be used; if not, 
                          where will the additional cash come 
                          from?
    © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 
    duplicated, in whole or in part, except for use as permitted in a license distributed with a 
           11–5
    certain product or service or otherwise on a password-protected website for classroom 
    use.
                    Forecasting Profitability
                    Forecasting Profitability
                
                    Net Income Depends On:
                   Amount of sales
                   Cost of goods sold
                   Operating expenses
                   Interest expense
                   Taxes
    © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 
    duplicated, in whole or in part, except for use as permitted in a license distributed with a 
           11–6
    certain product or service or otherwise on a password-protected website for classroom 
    use.