Exam 10: Forecasting Financial Statements

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

To ensure that the financial statements articulate it is important that the change in the cash balance on the balance sheet each year agrees with

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.

Many times an analyst will compute ending accounts receivable or inventory balances using turnover ratios, discuss the advantage and disadvantage of using this methodology.

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.

When projecting operating expenses it is important to determine the mix of fixed and variable costs, one clue suggesting the presence of fixed costs is

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that

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

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 _________________________ with in its geographic markets.

Just Camshafts sells auto parts. Provided below is selected financial information from the company's 2007 annual report: Using Just Camshafts financial information what is the company's inventory turnover ratio for 2007?

For some types of assets, such as accounts receivable asset growth typically ____________________ future sales growth.

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in

Financial statement forecasts should rely on ____________________ within financial statements.

The first step in the forecasting game plan is to project sales and other revenues. 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:

If a company has very low operating leverage (i.e. a low proportion of fixed costs the cost structure) and no changes are expected in operations

Cash, Inc. sells numerous office supply products through a national distribution center. The company has focused on maintaining a cash balance equivalent to approximately 14 days of sales. Sales in 2005 amounted to $125,980,673 and the company expects growth in 2006 of 11% and in 2007 of 15%. Given this information determine Cash, Inc.'s projected year-end cash balance for 2006 and 2007.

Baseball Card Land, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2006 amounted to $352,412 and the company expects growth in 2007 of 33% and in 2008 of 40%. Given the information provided about Baseball Card Land what is the company's 2008 projected cash balance?

The analyst can capture projected levels of operating activity by using ______________________________ to develop forecasts for individual assets.

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

The objective of forecasting is to develop