Exam 10: Forecasting Financial Statements

Sparky's Sparky's sells auto parts.Provided below is selected financial information from the company's 2012 annual report: Using Sparky's financial information what is the company's inventory turnover ratio for 2012?

If a firm competes in a ___________________________________ industry that the analyst expects will operate near capacity for the next few years,then price increases will

To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in sales or other ___________________________________.

For some types of assets,such as plant,property and equipment,asset growth typically ____________________ future sales growth.

A firm in transition from the high growth to the mature phase of its life cycle,or a firm with significant technological improvements in its production processes,might expect increases in ______________________________ but decreases in sales prices per unit.

Using common-size balance sheet percentages to project individual assets,liabilities,or shareholders' equity has all of the following shortcomings except:

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

Arco is an integrated manufacturer in capital-intensive industry.Nuwak manufactures more commodity-level products in the same industry at the lower end of the market and uses less capital-intensive processes.The following data describe sales and cost of products sold for both firms for Years 3 and 4. Industry analysts anticipate the following annual changes in sales for the next five years: Year +1,5 percent increase; Year +2,10 percent increase; Year +3,20 percent increase; Year +4,10 percent decrease; Year +5,20 percent decrease. Required a.The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example,cost of products sold)by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years.The analyst can then multiply the variable-cost percentage times sales to estimate the total variable cost.Subtracting the variable cost from the total cost yields an estimate of the fixed cost for that particular cost item.Follow this procedure to estimate the manufacturing cost structure (variable cost as a percentage of sales,total variable costs,and total fixed costs)for cost of products sold for both Arco and Nuwak in Year 4. b.Discuss the structure of manufacturing cost (that is,fixed versus variable)for each firm in light of the manufacturing process and type of product produced. c.Using the analysts' forecasts of sales changes,compute the projected sales,cost of products sold,gross profit,and gross margin (gross profit as a percentage of sales) of each firm for Year +1 through Year +5. d.Why do the levels and variability of the gross margin percentages differ for these two firms for Year +1 through Year +5?

As a firm progresses through the decline life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?

Financial statement forecasts should rely on ____________________ within financial statements.

It may be difficult to forecast sales for firms with _________________________ patterns because their historical growth rates reflect wide variations in both direction and amount from year to year.

The objective of forecasting is to develop

The first step in the forecasting game plan is to project sales and other other operating activities.Sales numbers are determined by both a volume component and price component.Projecting prices depends on factors specific to the firm and its industry that might affect demand and price elasticity.For the following types of firms discuss whether it would be likely that the firm would be able to raise future prices: a.A firm in a capital-intensive industry that is expected to operate near capacity for the near future. b.A firm in an industry that is expected to experience numerous technological improvements. c.A firm with products which are transitioning from the growth to maturity phase of the product life cycle. d.A firm that has established a well known brand name and image.

Nichols and Wahlen's 2004 study showed that superior forecasting provides the potential to earn superior security returns.Nichols and Wahlen's findings indicate

All of the following statements are true regarding ratios and forecasts except:

Projected financial statements can be used to assess the sensitivity of all of the following except:

To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.

A firm in a mature industry with little expected change in its market share might anticipate volume increases equal to the growth rate in the _________________________ within its geographic markets.

Bargains,Inc.manufactures and markets toys.Selected income statement data from 2010 and 2009 appear below: Required: a.An analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years.The analyst can then multiply the variable cost percentage times sales to determine the total variable cost.Subtracting the variable cost yields the fixed cost for that particular item.Follow this procedure to determine the cost structure for costs of goods sold for Bargains,Inc. b.Bargains,Inc.projects sales to grow at the following percentages in future years: 2011,9 percent; 2012,11 percent; 2013,15 percent.Using this information project sales,cost of goods sold and gross profit for Bargains,Inc.for 2011 to 2013.

All of the following are true regarding projected financial statements except: