Financial Planning and Forecasting

Which of the following is a primary source of capital for a firm, used in the context of determining financing needs?

What does the capital intensity ratio (A0*/S0) measure?

A firm has total assets of $2,000 million and sales of $3,000 million. Its spontaneously increasing liabilities are $200 million. The firm's profit margin is 3.92 percent and its dividend payout ratio is 48.94 percent. If sales are projected to increase by 10 percent, what is the firm's additional funds needed (AFN) according to the AFN equation?

What is the primary motivation for financial managers to use the forecasted financial statement method over the simpler AFN equation?

A firm is operating its fixed assets at 96 percent of capacity. Its actual sales are $3,000 million. What is the firm's full capacity sales level?

How would a decrease in a company's dividend payout ratio affect its Additional Funds Needed (AFN), holding other factors constant?

What is the term for the maximum growth rate a firm can achieve without having to raise external funds?

Which of the following is typically considered a 'spontaneously generated fund' in financial forecasting?

What is the primary reason for using regression analysis in financial forecasting instead of simply assuming that asset-to-sales ratios will remain constant?

If a company improves its inventory turnover from 5.26 to the industry average of 10.9, and its forecasted sales are $3,300 million, what is the expected reduction in inventory?

What is the first step in the financial planning process?

If a firm's Additional Funds Needed (AFN) is calculated to be a negative number, what does this indicate?

According to the text, which of the following is considered the most important input in a firm's forecast of its financial statements?

If a firm's management decides to increase its dividend payout ratio, what immediate, short-run effect would this have on its need for external funds (AFN), assuming all other factors are constant?

What is the final step in the four-step financial planning process described in the chapter, which makes the process iterative?

Carlsbad Corporation's sales are expected to increase from $5 million in 2018 to $6 million in 2019. Its assets totaled $3 million at the end of 2018 and are expected to grow in proportion to sales. At year-end 2018, its spontaneous liabilities were $250,000 in accounts payable and $250,000 in accrued liabilities. Its profit margin is 3 percent, and its retention ratio is 30 percent. Using the AFN equation, what are the additional funds needed?

If Allied Food improves its Days Sales Outstanding (DSO) from a projected 40.15 days to the industry average of 36 days, with projected daily sales of $9.04 million, what is the amount of cash freed up?

What is the purpose of the 'Operating Plan' within a firm's overall strategic plan?

Which of the following items typically does NOT increase spontaneously with sales?

If a firm begins to sell on credit when it previously had only cash sales, what is the immediate, short-run effect on its Additional Funds Needed (AFN)?

What is the term for the financial planning approach where the effects of various decisions on the firm’s financial position and value are studied by simulating their effects within the firm’s financial model?

Austin Grocers had sales of $700 million and is forecasting a 25 percent increase for the coming year. Its operating costs are expected to be 70 percent of sales. Its interest expense and dividend payout ratio are expected to remain constant, and its tax rate is 40 percent. If its net income was $96 million in the previous year and its dividends were $32 million, what is the projected net income for the upcoming year?

What is a primary consequence if a company's sales forecast is overly optimistic?

In the forecasted financial statement approach for Allied Food, how is the 2019 level of Accounts Receivable determined?

What is the primary purpose of a 'Mission Statement' in a firm's strategic plan?

What is the role of the 'Financial Plan' in the overall strategic planning process?

Why must an increase in a company's assets be matched by an equal increase in its liabilities and equity?

In the forecasted financial statement for Allied Food in Table 17.2, how is the 'Addition to retained earnings' for 2019 calculated?

What is a potential negative consequence of a sales forecast that is too low (overly pessimistic)?

Using the regression equation 'Inventories = -$35.7 + 0.186(Sales)', if a company projects sales of $3,300 million, what is its forecasted inventory level?

In financial forecasting, how are 'Adjustable Inputs' different from 'Fixed Inputs' in a model like the one in Table 17.2?

What does the term 'Corporate Scope' define within a strategic plan?

Which of the following describes the relationship between the AFN equation and the forecasted financial statement method?

If a firm's capital intensity ratio (A0*/S0) increases, what is the effect on its Additional Funds Needed (AFN), assuming sales growth and other factors are held constant?

In the context of the AFN equation, the retention ratio is calculated as:

A firm has a capital intensity ratio of 1.6, a spontaneous liabilities-to-sales ratio of 0.4, a profit margin of 10 percent, and a payout ratio of 45 percent. Its sales last year were $100 million. What is this firm's sustainable growth rate (the rate at which AFN equals zero)?

If a firm uses regression analysis and finds the equation for its receivables is 'Receivables = $9.25 + 0.07(Sales)', and it forecasts sales of $358.4 million for the upcoming year, what is its forecasted year-end balance for receivables?

How is financial planning related to value-based management?

Which of the following would most likely lead to a decrease in a firm's Additional Funds Needed (AFN)?

If a firm has excess capacity in its fixed assets, how does this affect the forecast for Additional Funds Needed (AFN) compared to a forecast that assumes full capacity?

In a full forecasted financial statement model, how are the amounts for financing accounts like short-term bank loans and long-term bonds typically determined?

What is the primary reason that firms often give financial guidance to security analysts?

If a firm's profit margin is eroded by increased competition, but sales remain steady, what is the immediate effect on its AFN?

According to the financial plan for Allied Food in Table 17.2, the company's Return on Equity (ROE) is projected to change from 12.5 percent in 2018 to 14.9 percent in 2019. What is the primary reason for this improvement?

What is the primary risk of a firm having an overly pessimistic sales forecast?

If a company decides to produce its products only after an order has been received, rather than producing them in advance, what is the immediate effect on its Additional Funds Needed (AFN)?

In the AFN model for Allied Food in Table 17.1, if the target growth rate was lowered to 5 percent, what would be the resulting AFN?

If a firm's managers are successful in negotiating longer payment terms with their suppliers, how does this affect the firm's financing needs?

What is the primary advantage of the forecasted financial statement method over the AFN equation?

Carlsbad Corporation's sales are expected to increase from $5 million to $6 million. Its assets totaled $4 million at the end of the previous year. What would be its Additional Funds Needed (AFN) if all other numbers are the same as in the base case (spontaneous liabilities increase by $100,000 and retained earnings increase by $54,000)?