Chapter 4 - Outline
  
  What is Financial Forecasting?
  
  2 Methods of Financial Forecasting
  
  3 Financial Statements for Forecasting
  
  Steps in a Pro Forma Income 
  Statement (I/S)
  
  Determining Production Requirements
  
  Percent-of-Sales Method
 What is Financial Forecasting?     
  
 
  Financial forecasting is looking 
  ahead to develop a financial plan 
  for the future
 
  Very important for the strategic 
  growth of a firm
 2 Methods of Financial 
 Forecasting:    
  – Using Pro Forma, or Projected, Financial 
   Statements (more exact, time consuming)
  – Percent-of-Sales Method (less precise, 
   easier to calculate)
    Often times these statements are 
           required
           by lenders
 3 Financial Statements for
 Forecasting
 
  Pro Forma Income Statement (I/S)
 
  Cash Budget
 
  Pro Forma Balance Sheet (B/S)
  The first step is to develop a sales 
          projection
 Steps in a Pro Forma
 Income Statement (I/S)
 
   Establish a sales projection
 
   Determine a production schedule 
  (or production requirements)
 
   Compute other expenses
 
   Determine profit by completing an 
  actual pro forma income 
  statement (I/S)