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Projecting Financial Forecast

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Explain how to perform a projected financial analysis. Identify at least one problem that may result from an incorrect projection.

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A projected financial analysis implies a forecast of future operational performance. In this case rather than an actual analysis, the issue is to forecast the items which will coincide with a forecast of Sales, which will either show an increase or decrease in Sales. The normal and most widely used method for accomplishing this task is the % of Sales method.

In essence, the actual Sales forecast represents ...

Solution Summary

A discussion on how best to forecast future financial performance, and the meaning of the final results which are obtained.

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Financial Forecasting of Required Additional Equity Financing

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Financial Forecasting. Small Motors Inc, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 6.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, what are the answers to the following questions? Hint: (Additional Financing Required = Projected assets -projected liabilities-current equity-projected increase in retained earnings)

a. What is the amount of projected total assets?
b. What is the amount of projected total liabilities?
c. What is the current equity?
d. What is the projected increase in retained earnings?
e. How much additional equity financing is projected to be required for next year?

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