tailieunhanh - Financial Management Theory And Practice, Brigham-11th Ed - Chapter 14

Chapter 14 Financial Planning and Forecasting Pro Forma Financial Statements a. The operating plan provides detailed implementation guidance designed to accomplish corporate objectives. It details who is responsible for what particular function, and when specific tasks are to be accomplished. | Chapter 14 Financial Planning and Forecasting Pro Forma Financial Statements ANSWERS TO END-OF-CHAPTER QUESTIONS 14-1 a. The operating plan provides detailed implementation guidance designed to accomplish corporate objectives. It details who is responsible for what particular function and when specific tasks are to be accomplished. The financial plan details the financial aspects of the corporation s operating plan. In addition to an analysis of the firm s current financial condition the financial plan normally includes a sales forecast the capital budget the cash budget pro forma financial statements and the external financing plan. A sales forecast is merely the forecast of unit and dollar sales for some future period. Of course a lot of work is required to produce a good sales forecast. Generally sales forecasts are based on the recent trend in sales plus forecasts of the economic prospects for the nation industry region and so forth. The sales forecast is critical to good financial planning. b. A pro forma financial statement shows how an actual statement would look if certain assumptions are realized. With the percent of sales forecasting method many items on the income statement and balance sheets are assumed to increase proportionally with sales. As sales increase these items that are tied to sales also increase and the values of these items for a particular year are estimated as percentages of the forecasted sales for that year. c. Funds are spontaneously generated if a liability account increases spontaneously automatically as sales increase. An increase in a liability account is a source of funds thus funds have been generated. Two examples of spontaneous liability accounts are accounts payable and accrued wages. Note that notes payable although a current liability account is not a spontaneous source of funds since an increase in notes payable requires a specific action between the firm and a creditor. Answers and Solutions 14 - 1 d. Additional funds .