4-1 CHAPTER 4 Financial Planning and Forecasting Financial Statements Plans: strategic, operating, and financial Pro forma financial statements SAles forecasts PErcent of sales method Additional Funds Needed (AFN formula Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 1 Copyright © 2002 by Harcourt, Inc. All rights reserved. CHAPTER 4 Financial Planning and Forecasting Financial Statements ◼Plans: strategic, operating, and financial ◼Pro forma financial statements ⚫Sales forecasts ⚫Percent of sales method ◼Additional Funds Needed (AFN) formula
4-2 Pro Forma Financial statements Three important uses: FOrecast the amount of external financing that will be required O Evaluate the impact that changes in the operating plan have on the value of the firm Set appropriate targets for compensation plans Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 2 Copyright © 2002 by Harcourt, Inc. All rights reserved. Pro Forma Financial Statements ◼Three important uses: ⚫Forecast the amount of external financing that will be required ⚫Evaluate the impact that changes in the operating plan have on the value of the firm ⚫Set appropriate targets for compensation plans
4-3 Steps in Financial Forecasting ■ Forecast sales Project the assets needed to support sales Project internally generated funds Project outside funds needed Decide how to raise funds See effects of plan on ratios and stock price Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 3 Copyright © 2002 by Harcourt, Inc. All rights reserved. Steps in Financial Forecasting ◼Forecast sales ◼Project the assets needed to support sales ◼Project internally generated funds ◼Project outside funds needed ◼Decide how to raise funds ◼See effects of plan on ratios and stock price
4-4 2001 Balance sheet (Millions of s) Cash& sec. 20 Accts pay. accruals $100 Accounts rec 240 Notes payable 00 Inventories 240 Total cL $200 Total Ca s 500 L-T debt 100 Common stk 500 Net fixed Retained assets 500 earnings 200 Total assets $1,000 Total claims $1,000 Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 4 Copyright © 2002 by Harcourt, Inc. All rights reserved. 2001 Balance Sheet (Millions of $) Cash & sec. $ 20 Accts. pay. & accruals $ 100 Accounts rec. 240 Notes payable 100 Inventories 240 Total CL $ 200 Total CA $ 500 L-T debt 100 Common stk 500 Net fixed assets Retained earnings 200 Total assets $1,000 Total claims $1,000 500
4-5 2001 Income Statement Millions of s) Sales $2,00000 Less: COGS(60%) 1200.00 SGA coSts 700.00 EBIT $10000 Interest 16.00 EBT $84.00 Taxes(40%) 33.60 Net income $5040 Dividends( 30% $1512 Add'n to rE $3528 Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 5 Copyright © 2002 by Harcourt, Inc. All rights reserved. 2001 Income Statement (Millions of $) Sales $2,000.00 Less: COGS (60%) 1,200.00 SGA costs 700.00 EBIT $ 100.00 Interest 16.00 EBT $ 84.00 Taxes (40%) 33.60 Net income $ 50.40 Dividends (30%) $15.12 Add’n to RE $35.28