Being the Finance Manger of a company how will you make a
financial forecasting?
Answer Posted / datta borude
Two key financial statements in the forecasting process are
the cash flow forecast and the statement of changes in
financial position. Here's what you do.
1. Review Past Operating Results
Determine:
past sales growth rates by product;
cost relationships to distinguish among fixed variable
costs;
items of income and expenses that are unusual, non-
recurring or not indicative of expected results;
income derived from assets that may not be included in the
company during the forecast period (i.e. non-operating
assets that may be withdrawn from the company before
completion of the investment, such as excess cash balances,
investment portfolios, art or excess land); and
break-even volume for the new product line. (You can use a
Break-Even Analysis Tool to help with this. Check the
Resources section.)
2. Make Estimations
Estimate sales volume, price and revenue for each product,
monthly for the first year and annually, thereafter, for
years two, three, four and five based on an analysis of
future market conditions for your various products.
Estimate costs for each future period based on forecast
sales volume and expected cost relationships. Additional
fixed and variable costs associated with forecast growth
should be included in the estimates.
3. Make Deductions
Deduct income taxes based on projected tax rates.
If there are significant differences between expenses
recorded for accounting and for tax purposes, you may want
to make these adjustments in a separate calculation. The
primary adjustment would relate to the difference between
depreciation recorded for accounting purposes and capital
cost allowance recorded for tax purposes. Also consider the
impact of tax losses carried forward.
4. Make Adjustments
Adjust net income to cash flow from operations by adding
back all non-cash charges included in the determination of
net income. The main non-cash items are depreciation and
amortization.
Based on your forecast operating cash flow, deduct the
following:
forecast capital spending based on the capital budget;
increase in working capital required to meet the forecast
growth in operations;
dividends consistent with prospective dividend
requirements; and
interest payments consistent with existing and proposed
lending agreements.
Add cash inflows not included in cash flow from operations
such as interest and proceeds from the sale of assets.
5. Include Proposed Investments
Finally, include the proposed investments in the forecast.
Is This Answer Correct ? | 17 Yes | 0 No |
Post New Answer View All Answers
Do you know the currency of different countries?
Explain the different types of banking software applications are available in this industry?
HOW DO YOU DEFINE RESEARCH? AND EXPLAIN HOW RESEARCHH HELPS FOR BETTER DECISION MAKING IN A FMCG COMPANY.
Differentiate between Cost Accounting and Financial Accounting?
What are G-secs?
What are your strengths and weaknesses? How will you overcome your weakness?
Which organization controls the monetary policy of our country?
What is 'public account fund'?
WHAT AMOUNT TAKEN IF THE COMPANY GET ASSET FREE?
What is a DMAT account?
How to check Credit Worthiness?
what is the shortcuts for Voucher Creation and Alteration Screen in Tally ERP 9?
What are the problems that you faced when demonetization was done overnight?
The crr, cash reserve ratio of scheduled banks is fixed at a certain percentage of their ndtl. What is ndtl?
What are the different types of Insurance coverage?