Question 1

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.

Accepted Answer

The answer of It may be difficult to forecast sales...

Question 2

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.

Accepted Answer

The answer of A firm in transition from the high...

Question 3

Financial statement forecasts should rely on ____________________ within financial statements.

Accepted Answer

The answer of Financial statement forecasts should rely on ____________________...

Question 4

The following balance sheet and income statement pertain to Goode Corp.,using the following assumptions complete a forecasted 2013 income statement:
 $\begin{array}{l}
\text { Assumptions far 2013: }\
\begin{array} { l l } 
\text { Revenue growth rate } & 45 \% \
\text { COGS } & 70 \% \text { of sales } \
\text { Operating expenses } & 18 \% \text { of sales } \
\text { Interest expense } & 12 \% \text { of begining lang-term debt } \
\text { Tax rate }&35\%
\end{array}
\end{array}$ 
 \(\begin{array}{l}
\begin{array}{lll}
 \text { Goode corp. Consolidated Statement of Income}\
  \text { (Thousands except per share amounts)}\
\
 \text { Net Revenues}\
 \text { Cost of Revenue}\
 \text { SG\&A}\
 \text { Operating Income}\
 \text { Interest Expense}\
 \text { Income Before Income Taxes}\
 \text { Income taxes}\
 \text { Net Income}\
 \text { Goode Corp Consolidated Balance Sheet }\
 \text { (Thousands)}\
 \text { Current Assets}\
 \text { Cash and Equivalents}\
 \text { Merchandise inventory}\
 \text { Accounts receivable}\
 \text { PPE  (including intangibles), net}\
 \text { Total Assets}\
 \text {Liabilities and Stockholders' Equity}\
 \text { Accounts payable}\
 \text {Long-term debt}\
 \text {Shareholders' Equity}\
 \text {Common stock and APIC}\
 \text {Retained earnings}\
 \text {Total Liabilities and Shareholders' Eq.}\
\end{array}
\begin{array}{lll}
\
2012\
\
\$ 345,871 \
(226,546) \
\underline {(83,009)} \
36,316 \
\underline {(484)} \
35,832 \
\underline {(12,541)} \
\underline { \$ 23,291}\
\
2012\
\
7,905\
6,308\
6,614\
\underline {39,458}\
\underline {60,285}\
\
9,643 \
13,500 \
\
28,613 \
\underline { 8,529} \
\underline { 60,285}\
\end{array}
\end{array}\)

Accepted Answer

The answer of The following balance sheet and income statement...

Question 5

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

Accepted Answer

A)  issued debt 
B)  paying down of debt 
C)  dividends 
D)  stock buy-backs

Question 6

One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances.What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

Accepted Answer

The answer of One problem caused by using turnover ratios...

Question 7

Realistic expectations are ____________________ and ____________________.

Accepted Answer

The answer of Realistic expectations are ____________________ and ____________________....

Question 8

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

Accepted Answer

A)  Individual assets, liabilities, and shareholders' equity are not independent
Of each other. 
B)  If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing. 
C)  Individual assets, liabilities, and shareholders' equity are independent
Of each other. 
D)  The common-size percentages do not permit the analyst to easily change
The assumptions about the future behavior of an individual asset or liability.

Question 9

In comparison of 2010 to 2009 performance,Watson Company's inventory turnover decreased substantially,although sales and inventory amounts were essentially unchanged.
Required:
During a corporate meeting you heard the following managers postulate why the decreased inventory turnover ratio happened.Which statement best explains the decreased inventory turnover ratio and why?
a.The marketing manager said: The decreased inventory turnover ratio is due to an increase in the cost of goods sold.
b.The operations manager said: The decreased inventory turnover ratio is due to increased gross profit percentage.
c.The credit manager said: The decreased inventory turnover ratio is due to a decrease in the accounts receivable turnover.
d.The shipping manager said: The decreased inventory turnover ratio is due to inventory being shipped FOB destination point that keeps those items in inventory until they reach the purchasers warehouse.

Accepted Answer

The answer of In comparison of 2010 to 2009 performance,Watson...

Question 10

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.

Accepted Answer

The answer of A firm in a mature industry with...

Question 11

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

Accepted Answer

A)  the method reduces the potential understatement inherent in average balances. 
B)  the method can introduce artificial volatility in ending balances. 
C)  the method results in understating inventory each year. 
D)  the method results in overstating inventory each year.

Question 12

Card Sharks, Inc.
Card Sharks, Inc.sells baseball cards and other memorabilia.The company tries to maintain a cash balance equivalent to approximately 30 days of sales.Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%.
-All of the following are the fundamental bases for future payoffs to equity shareholders and share value except:

Accepted Answer

A)  earnings 
B)  cash flows 
C)  dividends 
D)  depreciation

Question 13

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

Accepted Answer

A)  that an investor could earn excess returns if the investor could predict accurately the sign of the change in earnings one year ahead. 
B)  that an investor could earn excess returns if the investor could predict accurately the magnitude of the change in earnings one year ahead. 
C)  that an investor could earn excess returns if the investor could predict accurately the sign of the change in cash flows from operations one year ahead. 
D)  that an investor could earn excess returns if the investor could predict accurately the sign of the change in working capital one year ahead.

Question 14

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

Accepted Answer

The answer of Financial statement forecasts are important analysis tools...

Question 15

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

Accepted Answer

A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable.

Question 16

Sparky's
Sparky's sells auto parts.Provided below is selected financial information from the company's 2012 annual report:
 $\begin{array} { l r r } 
\text { Fiscalyear end } & 2012 & 2011 \
\text { (amounts in thousands of dollars) } & & \
\text { Net sales } & \$ 125,410 & \$ 106,380 \
\text { Cast of Goods Sold } & - 104,090 & -  8 9 , 3 5 5  \
\text { Grass Prafit } & \$ 21,320 & \$ 17,021 \
\text { Irventory } & \$ 31,353 & \$ 30,850
\end{array}$
-Sparky's forecasts that sales will grow by 25% in 2013 and that its cost of goods sold to sales ratio will be the same in 2013 as it was in 2012.If these assumptions prove correct and Sparky's inventory turnover ratio for 2013 is 4.5 what will be the level of inventory at the end of 2013?

Accepted Answer

A)  $31,353 
B)  $26,475 
C)  $40,000 
D)  $42,314

Question 17

In developing forecasts of expenses the analyst must take into consideration that expenses can be broken down into ________________________ or ______________________ components.

Accepted Answer

The answer of In developing forecasts of expenses the analyst...

Question 18

Financial ratio,percentage,and trend comparisons can be distorted by all of the following except:

Accepted Answer

A)  aggressive revenue recognition practices. 
B)  the timing of asset purchases. 
C)  accounting for similar economic fundamentals in similar fashion. 
D)  the presence of nonrecurring items among the firms being analyzed.

Question 19

Card Sharks, Inc.
Card Sharks, Inc.sells baseball cards and other memorabilia.The company tries to maintain a cash balance equivalent to approximately 30 days of sales.Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%.
-Given the information provided about Card Sharks,what is the company's 2012 projected year-end cash balance?

Accepted Answer

A)  $966 
B)  $50,820 
C)  $15,623 
D)  $38,524

Question 20

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

Accepted Answer

A)  dividends 
B)  growth related assets 
C)  issued equity 
D)  stock buy-backs

Exam 10: Forecasting Financial Statements