[11nugget]

Reasons companis need a financial forecast:brand new company, family-owned company, and a long-standing corporation.

How much investors will invest in you.

[morgaine300]

Is "How much investors will invest in you" supposed to be your answer? First, a family-owned company isn't going to have any investors. And you also need to think a lot deeper than that.

[11nugget]

Is "How much investors will invest in you" supposed to be your answer? First, a family-owned company isn't going to have any investors. And you also need to think a lot deeper than that.

Brand new company:
Because any (responsible) investor wants to know how hard they can expect their money to work before investing in any business. It also sets a productivity target for employees.

Family owned company:
At the very least, the family that owns the company wants to make sure they will be able to eat in the next month, quarter, or year if their sole source of income is that business. It also keeps the employees informed of current market conditions.

Long standing corporation:
It is required by the SEC, and it is the yardstick by which many stock investors gauge management's capabilities. The same reasons apply here as for the new company and family owned company. Long standing corporation, such as companies devote a very serious attention to financial forecasing because high cost involved during short term and long projects are at stake. A clear picture about the coming cash flows using capital budgeting methods.

It gives the owners/managers a chance to change coarse if needed, and give them a firm ground on which to build goals and future growth projections. How much investors will want to invest and let them know what the company is planning to do.

[morgaine300]

How detailed does this thing need to be?

You've got a good start. One thing I'll point out is that I've never worked at a company where the employees were let in on the financial forecasts. (One exception, but it was the forecasts for a partner we were working with, not the actual company we were working for.) The employees were usually not stupid and knew whether things were overall doing well or not, but the financials were basically none of their business. Granted, I've pretty much worked for small businesses. I can see reasons for letting them in on this, but I don't see why it would apply specifically to new companies.

Much of the same reasons are going to apply to any business. The one major difference is that a family-owned business is not looking for outside capital.

Can you think of a special difference for a new company? And can you think of anyone else who would want these forecasts besides those within the company?

[11nugget]

Pro Forma Financial Statements
cash 8%
accounts receivable 13%
inventory 21%
net fixed assets 35%
accounts payable 13%
accruals 8%
profit margin after taxes 6%

2008 sales $100million
2009 sales increase 15%
dividend payout ratio 30%
2009 retained earnings balance 33.00 million
2009 common stock 10.00 million
2009 long term bonds 5.95 million
2009 notes payable 12.00
a. Change in Sales (∆S) = .15x100million=15million
Spontaneous Assets = 8%+13%+21%+35%=77%
Spontaneous Liabilities = 13%+8%=21%

RNF = = $ _____

b. .77(15million)-0.21(15million)-0.06($115million)(1-0.5)
11.55million-3.15 million-3.45 million
4.95 million



c. ASSETS
Cash $9.20
Accounts Receivable 14.95
Inventory 24.15
Net Fixed Assets 40.25
Total Assets 88.15 This total should equal "Total Liab & S.E"
LIABILITIES AND SHAREHOLDER EQUITY
Accounts Payable $14.95
Accruals 9.20
Notes Payable 12.00
Long Term Bonds 5.95
Common Stock 10.00
Retained Earnings 31.50 The Assignment should have listed this as the 2009 Retained Earnings Balance.
Total Liab & S.E. 36.45 This total should equal "Total Assets"