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PROSPECTIVE ANALYSIS, SIGIT BUDY PRASETYA (F0319132) - Coggle Diagram
PROSPECTIVE ANALYSIS
THE PROJECTION PROCESS
Projecting Financial Statements
Projected Income Statement
Expected level of macroeconomic activity
The competitive landscape
New versus old store mix
Projected Balance Sheet
Projected Statement of Cash Flows
Sensitivity Analysis
The projected financial statements are primarily based on expected relations between income statement and balance sheet accounts. In this example, we used the most recent ratios as Target’s operations are fairly stable and we are assuming no significant changes in operating strategy.
Application of Prospective Analysis
in the Residual Income Valuation Model
As we stated at the outset of this chapter, prospective analysis is central to security analysis. The residual income valuation model, for example, defines equity value at time t as the sum of current book value and the present value of all future expected residual income
Trends in Value Drivers
APPENDIX 9A SHORT-TERM FORECASTING
. Short-term cash forecasting is of interest to internal users like managers and auditors in evaluating a company’s current and future operating activities. It is also of interest to external users like short-term creditors who need to assess a company’s ability to repay short-term loans
CASH FLOW PATTERNS
IMPORTANCE OF FORECASTING
SALES
Directions and trends in sales.
Market share.
Industry and economic conditions.
Productive and financial capacity.
Competitive factors.
CASH FLOW FORECASTING
WITH PRO FORMA ANALYSIS
The reasonableness and feasibility of short-term cash forecasts are usefully checked by means of pro forma financial statements. We accomplish this by using assumptions underlying cash forecasts to construct a pro forma income statement for the forecast period and a pro forma balance sheet for the end of the forecast period.
LOAN OFFICER
Your first step is to corroborate or refute management’s explanation for decreased sales in recent years. If their explanations are not validated with objective evidence, then you should reject DEC’s application—hint of unscrupulous behavior is reason enough for immediate nonapproval. If you are able to verify management’s explanations, your next step is to assess the level and uncertainty of DEC’s sales forecasts
SIGIT BUDY PRASETYA (F0319132)