Exam 11: Forecasting Financial Requirements

Pro forma financial statements serve two purposes: forecast how profitable you can expect a firm to be and how much financing will be needed to finance a firm's assets.

Many small firms have a tendency to underestimate the amount of capital the business requires when beginning operations.

Where should Rhonda put the administrative expenses for her business when she prepares her financial forecasts?

No single planning document is more important in the life of a company than the

Profits reward an owner for investing in a company and constitute a primary source of financing for future growth if reinvested in the business.

Match the term with its definition. -A short-term loan

Because Liam's new restaurant had a high volume of sales, his inventory needs increased, illustrating that a firm's asset needs are the primary force driving sales.

To be realistic, an entrepreneur should project profits only one year into the future.

James is preparing his forecasts for the coming year. Which of the following kinds of scenarios should he prepare when forecasting and budgeting?

The conventional measure of liquidity is the current ratio, which compares the current assets to current liabilities on a relative basis.

Net working capital equals current assets less total liabilities and is a measure of a company's liquidity.

Annual projections are adequate after year 2.

Tony operates a computer retail business. Based on this industry, how often should sales projections be made for Tony's company?

The greater a firm's sales, the greater the need for financing because of greater _____ requirements.

Cost of goods sold is always fixed.

Maria is projecting sales for her company for the upcoming year. To be financially effective, she

D&R Products forecasts that it will require $10,000 for equipment and depreciation will be over five years. The $10,000 will be reflected in the balance sheet as

Explain the percentage-of-sales technique.

Jill's business has current assets of $50,000 and current liabilities of $25,000. Which of the following statements is true about her company's current ratio?

Match the term with its definition. -Short-term debts, such as accounts payable, that automatically increase in proportion to a firm's sales