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Working Capital, Pro Forma financial statement and Forecasts

Discuss the importance of having a working capital policy.

Discuss why businesses spend time and effort and money to produce forecasts?
In addition, discuss how the cash budget and capital budget relate to pro forma financial statement preparation.

Solution Preview

Businesses spend time, effort and money to produce forecasts in order to assess their short term and long term capital requirements and establish benckmarks of performance. Forecasts are essential for any business for performance appraisal, identification of the degree of deviation from the vision and goal of the company and rectification of errors. In the absence of forecasting, management cannot do any type of planning process. Forecasting is the basis on which capital expenditures are incurred. Planning and resource allocation decisions are heavily dependent on forecasting.

"More often it is the forecasting process that is valuable, because it sensitizes managers to ...

Solution Summary

Businesses spend time, effort and money to produce forecasts in order to assess their short term and long term capital requirements and establish benckmarks of performance.

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