If there is one talent essential to the financial manager, it is:
a. the ability to plan ahead and make necessary adjustments before actual events occur
b. the ability to accurately determine the firm's earnings
c. the ability to prepare the firm's financial statements
d. the ability to effectively factor the firm's receivables
a. the ability to plan ahead and make necessary adjustments before actual events occur
The most comprehensive means of financial forecasting is:
a. through the use of securities analysts forecasts for the firm
b. done with a short term time horizon
c. done with a long term time horizon
d. through the use of pro forma financial statements
d. through the use of pro forma financial statements
The construction of the pro forma income statement is based on:
a. the prior year's income statement
b. sales projections and the production plan
c. the cash budget
d. the cash budget and prior year's income statement
b. sales projections and the production plan
Which of the following is not a step in the development of the pro forma income statement?
a. Establish a sales projection.
b. Determine a production schedule and associated expenses to determine gross profit.
c. Determine the cash receipts.
d. Determine profit by completing the actual pro forma statement.
c. Determine the cash receipts.
In general, the cost of producing a product is based on material, labor, and:
a. profit margin
b. cost of goods sold
c. overhead costs
d. shipping costs
c. overhead costs
In order to determine cash receipts, the financial manager must know:
a. projected sales and the collection pattern
b. projected sales and the profit margin
c. gross profit and the collection pattern
d. gross profit and taxes
a. projected sales and the collection pattern
All of the following are primary considerations for cash payments except:
a. material costs
b. labour and overhead costs
c. receivable receipts
d. disbursements for general & administrative expenses
c. receivable receipts
In a cash budget, net cash flow for the month is defined as:
a. revenues minus cost of goods sold
c. earning before taxes minus income taxes
d. operating profit minus interest expense and income taxes
b. monthly receipts minus monthly payments
The primary purpose of the cash budget is:
a. to break the income statement down into monthly periods
b. to determine monthly cash receipts
c. to determine the collection pattern
d. to allow the firm to anticipate the need for outside funding
d. to allow the firm to anticipate the need for outside funding
The first step in preparing the pro forma balance sheet is to:
a. prepare the pro forma income statement
b. prepare the cash budget
c. prepare the statement of cash flows
d. examine the prior period's balance sheet and translate the items through time
d. examine the prior period's balance sheet and translate the items through time
In preparing the pro forma balance sheet, all of the following will normally remain unchanged from the prior period except:
a. accounts receivable
b. marketable securities
c. long term debt
d. common stock
a. accounts receivable
On the pro forma balance sheet, changes in the level of accounts payable will be determined from:
a. the prior balance sheet
b. the cash budget
c. the pro forma income statement
d. the monthly cash payments schedule
d. the monthly cash payments schedule
Under the percent of sales method, the relationship between sales and what type accounts are assumed to maintain or constant relationship:
a. income statement
b. cash budget
c. balance sheet
d. cash flows.
c. balance sheet
To determine production requirements, which of the following would be appropriate?
a. Beginning inventory - ending inventory.
b. Sales + beginning inventory - ending inventory.
c. Sales - ending inventory
d. Projected sales + desired ending inventory - beginning inventory.
d. Projected sales + desired ending inventory - beginning inventory.
On the pro forma income statement, the increase in retained earnings is derived:
a. earnings before taxes - taxes
b. earnings aftertaxes - dividends
c. operating profit - taxes
d. operating profit - dividends
b. earnings aftertaxes - dividends
cash budget:
A series of monthly or quarterly budgets that indicate cash receipts, cash payments, and the borrowing requirements for meeting financial requirements. It is constructed from the pro forma income statement and other supportive schedules.
percent-of-sales method:
A method of determining future financial needs that is an alternative to the development of pro forma financial statements. We first determine the percentage relationship of various asset and liability accounts to sales, and then we show how that relationship changes as our volume of sales changes.
pro forma balance sheet:
A projection of future asset, liability, and shareholders' equity levels. Notes payable or cash is used as a plug, or balancing figure, for the statement.
pro forma income statement:
A projection of anticipated sales, expenses, and income.
sustainable growth rate:
That level of growth in sales that can be maintained by a corporation without seeking additional debt or equity financing to support the increasing investment in assets.
