From the course: Managerial Finance Foundations
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Financial modeling and forecasting financial statements
From the course: Managerial Finance Foundations
Financial modeling and forecasting financial statements
- A set of pro-forma, or projected financial statements, can be used to get an overall picture of a company's future financing needs, its potential problem areas, and so forth. Three important questions to ask in preparing pro-forma financial statements are as follows. One, what is the starting point of any financial statement forecast. Two, what causes increase in the company's assets and liabilities? And three, what causes increases in the company's expenses? Now, the sales forecast is the starting point, and in many ways, the most important point of creating pro-forma financial statements. With a good sales forecast, the forecast of financial statements will be reasonable. With a bad sales forecast, no amount of sophisticated financial statement modeling will yield the reliable forecast. Next, what causes increases in the company's assets and liabilities? Well, not all balance sheet accounts, assets and liabilities,…
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