Test your basic knowledge |

Financial Forecasting

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. Line-item accounts that change automatically as sales increase. These include: Most current assets -Accounts payable -Accruals (e.g. accrued wages) -SOMETIMES fixed assets






2. Assets / Equity (When company is willing to borrow more and increase leverage - it has more cash to support growth)






3. = 1 - (B - Payout Ratio) (This is the flipside of the payout ratio)






4. Cash Dividends / NI (Informs us how much of net income we pay out in dividends; its flipside is the plowback ratio)






5. Method of forecasting that relates everything back to sales






6. Future RE = Old RE + Projected Sales X Net Margin X (1 - Payout Ratio)






7. ROE = Net Margin Asset Turnover Equity Multiplier 1) Net Margin = NI / Sales 2) Asset Turnover = Sales / Asset 3) Equity Multiplier = Assets / Equity






8. 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)






9. Sales / Assets (As this goes up - more sales are generated per dollar of assets and the firm requires less investment to increase sales)






10. Interest (assumed no change) -Retained Earnings (must be independently forecasted)


11. Forecasting - future






12. Garbage in - garbage out. A characteristic of financial forecasting - i.e. if our assumptions are dumb - our answers will also be dumb






13. RE = Old RE + Change in RE (NI - Dividends)






14. Net Income / Equity OR Net Margin/profitability Asset Turnover/Efficiency Leverage/financing






15. NI / Sales






16. 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






17. Projected Total Assets - Projected Total Liabilities - Projected Owner's Equity






18. To understand the possible implications of today's decisions on tomorrow's performance






19. Total Assets needed to finance the new sales level






20. AKA Discretionary Accounts. Line-item accounts that do not automatically change as sales increase; these include: Notes Payable -Long-term liability -Common stock






21. Discretionary Financing Need; the amount of additional financing the firm will need to work the assumptions and pro forma financial statements.