If Return on Equity is a good predictor of stock price and market performance, why bother to calculate any other ratios? A. Ratio analysis allows us to analyze different ways to improve return on equity. B. Ratio analysis allows us to peer into the workings of any business and evaluate how well the management is performing. C. Good point. Why bother? D. Both A and B Why are financial pro formas so important? A. They are the most widely used vehicles for predicting the future. B. Pro Formas allow companies, their management, their employees, and their shareholders to view future performance in a logical and consistent manner. C. Pro formas allow a company to always accurately predict what will happen in the long term. D. Pro Formas are the only basis for evaluating the value of a company. In financial forecasting, why is the percentage of sales method valid for predicting future income statement and balance sheet items? A. Because sales revenue is easy to estimate accurately and does not change very much over time. B. Because only companies that are growing sales will survive in the long-run. C. Because a large portion of the cost of doing business is related to increasing sales. D. Because many of the critical items on the income statement and balance sheet are directly related to the level of sales volume a company achieves. One important use of pro formas is to calculate external funding requirements in the future. Which of the following statements is true about external financing forecasting? A. External Funding Required = Total Market Value - (Current Liabilities + Equity) B. External financing forecasting can eliminate the possibility of running out of cash. C. Banks do not like to lend money to companies who need external financing. D. Owners do not like external financing because it reduces the amount of money they can earn on their shareholders equity. E. None of the above