Question 1

The Pro Forma income statement, cash budget and balance sheets are used for financial forecasting.

True False

Question 2

Which of the following is NOT part of the financial forecasting process?

Sales projection and, if appropriate, a production schedule.

Proforma Balance sheet and P&L.

Bank reconciliation.

Estimate of expenses and profits.

Question 3

The generation of sales and profits does not necessarily ensure there will be adequate cash on hand to meet financial obligations.

True False

Question 4

The following are all true about the percent of sales method:

- It is one shortcut that can be used to bypass the pro-forma process

- It assumes that balance sheet items will maintain a given relationship to sales.

- It can be used to analyze various aspects of an income statement (or P&L) to sales

True False

Question 5

What is the name of the process for determining the point at which costs are covered by sales and/or the point at which dividing fixed costs by the contribution margin on each unit sold?

Question 6

The sales projection is often the easiest and least crucial part of a pro-forma analysis.

True False

Question 7

On an accrual basis the generation of sales and profits means that there will be enough cash on hand to meet financial obligations.

True False

Question 8

There is a good living to be made out there by using regression and time series analyses to help marketing departments predict sales trends.

Statistical techniques such as this are not incorporated into the sales forecast. It is strictly the duty of the marketing department to do this.

Statistical tools like this are the only aspect of creating a sales forecast. If you leave it up to the computers and the math, they will always find the right answer.

This is an accurate statement. Statistical techniques enhance managment intuition with facts and logic to help make some of the most important decisions you can make in business. There is a lot at stake if the wrong decision is made.

This is not accurate because the process is straightforward and easy and as long as you are pretty accurate you can sit back without worry that your business will be profitable.

Question 9

The pro-forma process starts out with a sales projection, which is used to create a pro-forma income statement, which then (combined with cash budgets/statements and a prior balance sheet) is used to come up with a new balance sheet.

True False

Question 10

The pro-forma balance sheet can be used to begin to answer the following:

- How increases in assets have been financed

- It can help top management figure out the kinds of financing to increase or decrease based on expectations in the coming period (year, quarter, etc).

- To create strategic or operational goals to help organizations run better and to address agency theory issues in the process

- As a communication tool for any stakeholder of the company (bankers, lenders, stockholders) to help guide the future.

- As a way to predict future financial ratios and the interpretations that come out of them before they actually occur.

True False