QUESTION 11

Which of the following statements about the process of forecasting a firms pro forma Financial Statements is NOT true?

1. In developing the pro forma Financial Statements, it is important to understand both the market for the firms products and the firms marketing plan

2. Following the development of sales forecasts, one of the next critical steps is to forecast the firms asset turnover ratio (ATO)

3. In developing the pro forma Financial Statements, it is important to have some accounts that expand or contract in response to changes in activities

4. Forecasts of the firms future activities should be conservative to ensure that the value of the firm is not overstated

QUESTION 10

Which of the following statements about the process of forecasting a firms pro forma Financial Statements is TRUE?

1. If the firms industry and the way in which the external environment affects the industry are understood, there is no need to consider how macroeconomic factors affect the firm directly

2. It is impossible for a firm to change its asset turnover (ATO) ratio and hence there is no need to forecast the ATO

3. Over time, all companies will reach a steady state where their sales growth and performance measures flatten out

4. One of the critical challenges in developing the pro forma Financial Statements is that of circularity