Chapter 15 - Financial Planning, Forecasting and Cash Budgets

The strategic financial plans are planned long-term financial actions and the anticipated financial impact of those actions.

If the net cash flow is less than the minimum cash balance, financing is required

Cash planning involves the preparation of the firm's income statement

A positive external funds requirement would indicate that the firm's financing is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

The sales forecast, cash budget, and pro forma financial statements are the key outputs of the short-run (operating) financial plan

The excess cash balance is the amount available for investment by the firm if the desired minimum cash balance is less than the period's ending cash.

The "plug" figure that is used as a balancing account in the pro forma balance sheet is retained earnings

The pro forma statements provide the financial manager with the amount of external financing required to support a given level of sales as well as a basis for analyzing in advance the level of profitability and overall financial performance of the firm in the coming year

The cash budget gives the financial manager a clear view of the timing of the firm's expected profitability over a given period

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period

The financial planning process begins with short-run plans and budgets that in turn guide the formulation of long-run financial plans

A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects

Pro forma financial statements are used primarily to assess a firm's historical performance

Any firm with a positive growth rate in sales will require some amount of external funding, assuming all existing ratios are to be maintained

An increase in the firm's inventory balance will normally require additional financing, unless the increase is matched by an equally large decrease in some other assets account

The financial planning process begins with __________ financial plans that in turn guide the formation of __________ plans and budgets

The key aspects of the financial planning process are:

Pro form statements are used for:

Which of the following would be the lease likely to utilize pro forma financial statements or a cash budget?

The __________ is a financial projection of the firm's short-term cash surpluses or shortages

__________ forecast is based on the relationships between the firm's sales and certain economic indicatiors

Key inputs to short-term financial planning are:

Of the following, generally, the easiest to estimate are:

The percent-of-sales method of preparing the pro forma income statement assumes that all costs are:

___________ generally reflects the anticipated financial impact of long-term actions

The primary purpose in preparing a budget is:

All of the following accounts are used in the preparation of the cash budget, EXCEPT:

Holding other things constant, the additional funds required for financing the firm's operations would be reduced with an increase in the firm's