FREE Financial Forecasting And Planning Questions and Answers
While the average payment period gauges the company's liquidity, the average collection period measures the company's solvency.
This assertion is false. Average collection time and average payment time are two financial metrics that are used to evaluate a company's working capital management effectiveness, but they each focus on a different area of the business's operations.
Whatley's twin made what marketing choice to boost sales?
As mentioned in the context of the question, Whatley's twin made the marketing decision to boost sales by going to trade shows. Trade shows are occasions where businesses from a specific sector congregate to exhibit their goods and services to potential clients, business partners, and other sector participants.
What does a cash budget serve?
A cash budget's goal is to ascertain whether the company has a surplus or shortage of cash. A forecast of a company's cash inflows and outflows over a specific time period is known as a cash budget. It is employed to assist the company in managing its cash flow and to spot potential shortages or surpluses of cash.
Percent of the sales strategy
In order to estimate various expenses for a future period as a percentage of the anticipated sales forecast, one budgeting and forecasting technique is known as the "Percentage of Sales Method." This approach is also referred to as "proportional budgeting" or "sales-based budgeting.
Financial forecasting typically starts by:
A sales forecast is typically the first step in financial forecasting. The foundation for projecting other financial aspects of a business, such as cash flows, expenses, and profits, is the sales forecast, which is a crucial part of financial forecasting.
Profit retained for reinvestment is the accumulated business profit that is not distributed as a dividend to shareholders.
The accumulated business profits known as retained earnings are those that are kept and reinvest back into the company rather than being paid out as dividends to shareholders. The amount of net profit that a business decides to keep and add to its equity base as opposed to paying cash dividends to shareholders is represented by this.
AFN is an equation that illustrates the relationship between an organization's external funds and its .
The AFN equation demonstrates the connection between a company's external funding and its anticipated asset growth, unplanned liability growth, and increase in retained earnings.
How to predict business finances?
Estimating revenues and costs over the planning period is crucial for predicting the financial performance of a business. This enables a thorough and accurate projection of the business's financial situation and performance.
The ability of a company is gauged by its asset turnover ratio.
A financial metric called the asset turnover ratio assesses a company's capacity to generate sales or revenue from its total assets. It is calculated by subtracting average total assets from net sales (also known as revenue). A higher ratio shows better resource utilization and more effective use of a company's assets. Lower ratios could be a sign of excessively idle assets or inefficient asset use. For investors, creditors, and management, the asset turnover ratio is essential because it determines how effectively a business generates sales from its asset base.
Creating a budget
To help the organization reach its financial goals and ensure effective financial management, the budgeting process entails the creation of a thorough financial plan that includes planning, forecasting, resource allocation, and control activities.
Short-term loans are included in the spontaneous increase in liabilities in the AFN (Additional Funds Needed) equation.
The AFN equation excludes short-term loans as unanticipated increases in liabilities, because they are not incurred as part of normal business operations. These loans represent a source of external financing that is subtracted from the AFN equation. Instead, they are used to finance expansion and are therefore not factored into the equation.
If the inventory turnover is ____ and the accounts receivable turnover is ____, the business is said to be efficient.
Inventory turnover measures a business's capacity for quick sales, ensuring that inventory is not kept on hand for an excessive amount of time. The ability of a business to collect accounts receivable quickly, thereby minimizing the need for debt financing, is measured by account receivable turnover. A company's ability to sell inventory quickly is indicated by a high inventory turnover rate, whereas an ability to quickly collect accounts receivable is indicated by a low inventory turnover rate.
Establish a long-term budget.
Long-term budgets cover one to five years. It helps organizations plan, set goals, and allocate resources. Long-term budgets typically consider the company's strategic goals, growth plans, and expected business environment changes. To create a multi-year financial roadmap for the organization, these budgets forecast revenue, expenses, and capital expenditures.
The creditors use this financial statement to assess whether a company is making enough money to cover its debts.
The "Statements of profit or loss," also referred to as the "Income Statement" or "Profit and Loss Statement," is the financial statement that creditors use to determine whether a company is making enough money to cover its debts.
What are the funding sources?
The two main categories of financing sources are spontaneous and discretionary. Sources of Spontaneous Funding: Funds that appear automatically or naturally as a result of a business's daily operations are referred to as spontaneous financing. The management does not need to take any specific decisions or actions to secure the funds from these sources of financing.
Which of the following sums up a budget the best?
The best way to define a budget is as a plan for spending and saving money. To effectively manage their finances, individuals, families, businesses, and organizations use this financial tool.