Question

PLEASE ANSWER ALL PARTS FOR A THUMBS UP RATING, THANK YOU!

1) What are the main elements to take into consideration in preparing a financial forecast?

2) Once you develop an initial set of projected financial statements, what are some things to check to make sure the forecast makes sense?

3) In general, is it easier to plug a cash shortfall with debt or equity? Explain.

Answer 1

A. Main elements which are to be taken into consideration for preparing a financial forecast will be as follows-

I. Risk associated with the overall business

II. Weighted average cost of capital associated with the business

III. The demand and supply pattern which are associated with the business.

Iv. Interest rate and the inflation fluctuation expectation of the overall economy

V. Industry specific risk like entry and exit of new competitors

B. some of the things to make sure the forecast make sense will be keep on checking up on the cash flows which will be coming in line with the actual and standard so the variance can be worked upon in order to take the corrective actions.

The actual and standard figures should always be matched

C.it is easier to fund cash shortfall with debt capital because they are easily available in the market and they will be available for the various time period whereas equity will be having a lot of proceedure and floatation cost