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b.) Sales Forecast - planning is focused on projected future sales and the assets and financing
need to support the sales. Oftentimes, it is given as the growth rate in sales rather than as an
explicit sales figure.
c.) Pro-forma statements financial plan will have a forecast statement of financial position,
income statement, statement of cash flows, and statement of stockholders equity.
d.) Asset Requirements financial plan will describe projected capital spending. (i.e. changes in
total fixed assets and net working capital)
e.) Financial Requirements financial plan will include a section about the necessary financing
requirements. (i.e. discussion of dividend policy and debt policy.)
f.) Additional Funds Needed some amount of new financing will often be necessary because
projected total assets will exceed total liabilities and equity.
Steps in making the Projected Financial Statement:
1. Forecast the Income Statement
2. Forecast the Statement of Financial Position
3. Raising the additional funds needed.
4. Consider financing feedbacks.
Formula for Additional Funds Needed (AFN)
AFN= Required Increase in Assets Spontaneous Increase in Liabilities Increase in Retained
Earnings
Financial Management 1
Technological Institute of the Philippines Manila
Illustrative Examples:
Financial Forecasting (Percent of Sales Method)
The Liue Vhien Company has presented its average income statement and financial position for
5 years.
Income Statement
Sales
Cost of Sales
Gross Profit
Operating Expenses
Earnings before interest and taxes
Interest Expenses
Earnings before taxes
Taxes (30%)
Earnings after taxes
3,000,000.00
(1,800,000.00)
1,200,000.00
(570,000.00)
630,000.00
(105,000.00)
525,000.00
(157,500.00)
367,500.00
Dividents
220,500.00
Assets
Cash
Accounts Receivable
Inventory
Fixed Assets
Total
2,099,600.00
Accounts Payable
Accrued Wages
Notes Payable - bank
Long term debt
Ordinary Shares
Retained Earnings
Total
150,000.00
82,800.00
50,000.00
759,000.00
800,000.00
257,800.00
2,099,600.00
The Company is expecting a 25% increase in sales next year and is concerned about the need to
raise external funds. The increase in the sales is accompanied by more efficient asset utilization
in the existing store without any additional purchase of fixed assets. Among the liabilities, the
current liabilities vary directly with sales.
Financial Management 1
Technological Institute of the Philippines Manila
Solution:
Sales
Cost of Sales
Gross Profit
Operating Expenses
Earnings before interest and taxes
Interest Expenses
Earinings before taxes
Taxes (30%)
Earnings after tax
477,750.00
Dividends
277,750.00
Assets
Cash
Accounts Receivable
Inventory
Fixed Assets
Accounts Payable
Accrued Wages
Notes Payable - bank
Long term debt
Ordinary Shares
Retained Earnings
Total
Total
2,499,500.00
Financial Management 1
Technological Institute of the Philippines Manila
2,357,800.00