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Test your basic knowledge |
Financial Forecasting
Start Test
Study First
Subject
:
business-skills
Instructions:
Answer 21 questions in 15 minutes.
If you are not ready to take this test, you can
study here
.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.
This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Method of forecasting that relates everything back to sales
4 Ways to Decrease the DFN
Definition of pro-forma
Percent of Sales Method
Objective of Financial Forecasting
2. AKA Discretionary Accounts. Line-item accounts that do not automatically change as sales increase; these include: Notes Payable -Long-term liability -Common stock
Classic RE Formula
Percent of Sales Method
Net Margin
Non-spontaneous Accounts
3. Projected Total Assets - Projected Total Liabilities - Projected Owner's Equity
DFN Formula
Classic RE Formula
Definition of pro-forma
Total Financing Need
4. Net Income / Equity OR Net Margin/profitability Asset Turnover/Efficiency Leverage/financing
What accounts don't necessarily fall under either spontaneous or non-spontaneous?
Total Financing Need
DFN Formula
ROE
5. 1) Slow sales growth (e.g. increase price - net margin; decrease assets needed) 2) Examine capacity restraints (e.g. full capacity? outsource?) 3) Lower dividend payout (ratio) 4) Higher net margin (raise price - cut costs)
Definition of pro-forma
Sustainable Growth Rate Equation
4 Ways to Decrease the DFN
Percent of Sales Method
6. To understand the possible implications of today's decisions on tomorrow's performance
DFN Formula
Objective of Financial Forecasting
Leverage
What accounts don't necessarily fall under either spontaneous or non-spontaneous?
7. Future RE = Old RE + Projected Sales X Net Margin X (1 - Payout Ratio)
GIGO
ROE
Asset Turnover
Forecasting RE Formula
8. ROE = Net Margin Asset Turnover Equity Multiplier 1) Net Margin = NI / Sales 2) Asset Turnover = Sales / Asset 3) Equity Multiplier = Assets / Equity
Asset Turnover
GIGO
DuPont Equation for ROE
DFN Formula
9. Interest (assumed no change) -Retained Earnings (must be independently forecasted)
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10. Total Assets needed to finance the new sales level
Sustainable Growth Rate Equation
Non-spontaneous Accounts
DFN Formula
Total Financing Need
11. Assets / Equity (When company is willing to borrow more and increase leverage - it has more cash to support growth)
Sustainable Growth Rate Equation
GIGO
Leverage
DuPont Equation for ROE
12. Forecasting - future
Net Margin
Classic RE Formula
Definition of pro-forma
ROE
13. = 1 - (B - Payout Ratio) (This is the flipside of the payout ratio)
GIGO
DFN Formula
Plowback Ratio
Net Margin
14. Discretionary Financing Need; the amount of additional financing the firm will need to work the assumptions and pro forma financial statements.
Leverage
DFN
DFN Formula
Objective of Financial Forecasting
15. Line-item accounts that change automatically as sales increase. These include: Most current assets -Accounts payable -Accruals (e.g. accrued wages) -SOMETIMES fixed assets
Forecasting RE Formula
Total Financing Need
Spontaneous Accounts
4 Ways to Decrease the DFN
16. NI / Sales
Objective of Financial Forecasting
Sustainable Growth Rate Equation
Non-spontaneous Accounts
Net Margin
17. Sales / Assets (As this goes up - more sales are generated per dollar of assets and the firm requires less investment to increase sales)
GIGO
Net Margin
DuPont Equation for ROE
Asset Turnover
18. RE = Old RE + Change in RE (NI - Dividends)
Plowback Ratio
ROE
Total Financing Need
Classic RE Formula
19. The rate of growth where the firm's big four $$ ratios (DuPont ratios and Payout) remain constant and no equity is required to fund growth. - G* = ROE (1-B) ROE = Net Margin Asset Turnover Leverage B = Payout Ratio 1-B = Plowback Ratio (G* is a fun
GIGO
Non-spontaneous Accounts
Definition of pro-forma
Sustainable Growth Rate Equation
20. Garbage in - garbage out. A characteristic of financial forecasting - i.e. if our assumptions are dumb - our answers will also be dumb
GIGO
Payout Ratio
Objective of Financial Forecasting
Sustainable Growth Rate Equation
21. Cash Dividends / NI (Informs us how much of net income we pay out in dividends; its flipside is the plowback ratio)
Leverage
Classic RE Formula
Payout Ratio
Definition of pro-forma