FINANCIAL PLANNING AND FORECASTING
Forecasting Apple’s Future
In what five ways do managers use pro forma financial statements?
Briefly describe each of these corporate planning terms: (
1) mission statement
(2) corporate scope
(3) corporate objectives
(4) corporate strategies.
How can the financial plan be used to help formulate corporate
strategies?
Why is an accurate sales forecast critical for financing planning?
If the key ratios are expected to remain constant, the AFN equation
can be used to forecast the need for external funds.
Write out the equation and explain its logic.
How do the following factors affect the AFN, or the requirements
for external capital?
(1) Retention ratio.
(2) Capital intensity.
(3) Profit margin.
(4) Dividend payout ratio.
(5) Sales growth.
Is it possible for the AFN to be negative? What would that indicate?
If excess capacity exists, how will that affect the AFN?
What advantages does the forecasted financial statement method
have over the AFN equation for forecasting financial requirements?
Using the AFN equation, we forecasted that Allied would need $114
million of external funds, while the fourth-pass (final) AFN forecast
based on financial statements was $112.5 million.
However, the AFN forecast under the modified statement approach was negative. What caused the huge change in AFN?
Examine the following statement: “Using regression to predict items
like inventories is better than basing such predictions on the latest
inventory/sales ratio because regression helps smooth out the effects
of random fluctuations.” Do you agree or disagree? Explain.