Xac/280 Week 7 Financial Forecasts

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Luisa Fernanda Treviño A01231457 Agosto/13/2015 Proyecciones Financieras Financial statement forecasts * Expected future income statements * Balance sheets * Cash flows Financial statement forecasts represent an integrated portrayal of a firm’s future operating, investing and financing activities. = Future profitability, growth, financial position, cash flows, risk. Optimistic forecasts can lead the analyst to overestimate future earnings and cash flows or underestimate risk and therefore make poor investment decisions. Conservative forecasts can lead the analyst to understate future earnings and cash flows overstate risk. Focal points of the firm’s strategy * Accounting quality * Profitability * Risk General forecasting principles…show more content…
They should rely on the additivity within financial statements- the analyst can rely on the internal discipline of accounting across the three primary financial statements to reduce the possibility of errors from inconsistent assumptions. Seven step forecasting game plan 1. Project revenues from sales and other operating activities 2. Project operating expenses and derive projected operating income 3. Project the operating assets that will be necessary to support the level of operations projected in steps 1 and 2. 4. Project the financial leverage, financial assets, and common equity capital that will be necessary to finance the net operating assets projected in step 3. 5. Project nonrecurring gains or losses and derive projected income before tax. 6. Check whether the projected balance sheet is in balance. If it is not in balance, the projected financial structure may need to be adjusted. 7. Derive the projected statement of cash flows from the projected income statement and the changes in the projected balance sheet amounts. Practical tips for implementing the seven-step forecasting fame

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