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Forecasting Modeling Budgeting

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Note: This modeling is completely separate from the prior budgeting tasks; no numbers from the scenario or from the budgeting process are to be used, although the scenario itself should be used as background information.

Individual:

- In the Financial Planning Model Excel file, familiarize yourself with the Financial Planning Model and the Instructions for Model to learn how the model works.
- In the Financial Planning Model worksheet, try changing each of the following 8 variables: sales growth percentage rate, percentage of sales from international, percentage sales from strength products, inventory turn, fixed portion of SG&A, variable portion of SG&A, payment terms to vendors, and payment terms from customers.
- When you change each variable, observe what happens to the profit as a percentage of sales, gross profit as a percentage of sales, worst case single period cash flow, and worse case cumulative cash flow.
Examples:

- go from 0% CV to 25% CV
- go from 0% international sales to 10% international
- go from 30 days A/R terms to 60 days A/R terms
- go from 60 days A/P terms to 30 days A/P terms
For each, explain:

- Profit as percentage of sales goes from _____to______
- Gross profit goes from _____to______.
- Worst case single period cash flow goes from _____to______.
- Worst case cumulative cash flow goes from _____to______.
- Then change 2â?"3 variables at a time; like growth rate and percentage of sales from international sales; or payment terms to vendors and payments from customers. Make the same observations.
- Summarize your observations in a 300â?"word paper containing a list of variable changes and the subsequent effects.

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Forecasting modeling budgeting is examined.

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ANSWERS
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Changing the sales growth percentage rate, whether up or down, significantly impacts the company's profit margin in the same direction. This means that if the sales growth percentage is revised upwards, then the profit as percentage of sales forecast will also be revised upwards. However, changing the percentage of the sales from international operations has no impact at all on the company's profit as percentage of sales, ...

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