Financial Forecasting:

To determine potential future financial needs, one must generate a plan based not only on past relationships but also on reasonable future projections. Using ratios to help formulate a forecast where sales drive results is an important step in the planning process. The financial planning models generated by forecasting activities help synthesize the financial manager's thinking about financial, as well as operational, relationships. To generate an estimate of future funding needs, financial planning models use the traditional financial statements you know and love the balance sheet, the income statement, and the statement of cash flows. There are some slight differences, however, between an accounting approach and a financial approach to planning. Specifically, from a current assets and current liabilities perspective, the focus is on firm operations, and not the financial instruments that represent short-term balance entries. For example, accounts receivable and inventories are used from the current assets section, but cash and marketable securities are not. Accounts payable, taxes payable, and wages payable are used from the current liabilities section, but short-term debt and current portion of long-term debt are not used in the planning process. Remember the focus... Generating a financial plan helps determine future financing needs, incorporates operational plans into financial plans, and provides bases for firm valuation. All those factors should be driven by operations, and not access to short-term financial instruments. Although the outcome of a plan may be a need or estimated need for access for "what-to-do," e.g. how much short-term borrowing should we do in the short-term, the starting point excludes those factors.

Required:

When planning an acquisition, financial forecasts often provide guidance for future activities.

1. How long in the future do you think is an appropriate length of time to formulate a financial plan? Write 50 words.

2. What financial forecasting experience do you have? Write 100 words.

3. Why do you think financial forecasting might be problematic? Write 100 words.

Please write in your own words. Please don't copy from anywhere and give the link which is used for writing.