Q Search this course x Ch 17: Assignment - Financial Planning and Forecasting 5. Using regression analysis to forecast assets The AFN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difcuit than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Axis Chemical Co, has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$98,770 +0.225(Sales) $9,900 +0.243(Sales) Andis Chemical Co. currently has sales of $900,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Ads Chemical Co.'s forecasted values for accounts receivable and inventories needed to support next year's sales Forecasted Values for Next Year Accounts receivable Inventories Based on the next year's accounts receivable and inventory levels predicted by Axis Chemical Co.'s regression equations, the firm's DSO for next year is expected to be Use 365 days as the length of a year in all calculations 5. Using regression analysis to forecast assets X The AFN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Axis Chemical Co. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$98,770 +0.225(Sales) $9.900 +0.243(Sales) Axis Chemical Co. currently has sales of Axis Chemical Co.'s forecasted values for $147,516 it expects sales to grow 15% over the next year. Use the regression models to calculate $134,105 Jeivable and inventories needed to support next year's sales $154,221 $160,926 Forecasted Values for Next Year Accounts receivable Inventories Based on the next year's accounts receivable and inventory levels predicted by Axis Chemical Co.'s regression equations, the firm's so for next year is expected to be Use 365 days as the length of a year in all calculations 5. Using regression analysis to forecast assets The AFN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Axis Chemical Co. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$98,770 +0.225(Sales) $9,900 +0.243(Sales) Ads Chemical Co. currently has sales of $5261,405 t expects sales to grow by 15% over the next year. Use the regression models to calculate Axis Chemical Co.'s forecasted values for eivable and inventories needed to support next year's sales. $287,546 $274,475 Forecasted Values for Next Year Accounts receivable Inventories $248,335 Based on the next year's accounts receivable and inventory levels predicted by Axis Chemical Co.'s regression equations, the firm's DSO for next year is expected to be Use 365 days as the length of a year in all calculations. 5. Using regression analysis to forecast assets The APN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Axis Chemical Ca. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$98,770 + 0.225(Sales) $9,900 +0.243(Sales) Axis Chemical Co. currently has sales of $900,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Ax Chemical Co.'s forecasted values for accounts receivable and inventories needed to support next year's sales Year 42.56 days Forecasted Val Accounts receive 47.29 days Inventories 44.93 days 40.20 days Based on the next Juts receivable and Inventory levels predicted by Axis Chemical Co.'s regression equations, the firm so for next year is expected to be Use 365 days as the length of year in all calculations Grade It Now Save & Continue