Financial Forecasting Essay Example | Topics and Well Written Essays - 750 words

Financial Forecasting - Essay ExampleThe report also explains further information that postulate to be reviewed to make the findings more meaningful. This performance analysis can be used by the management, the shareholders or the potential investors to identify with the performance of the come with and in particular assess its strengths and weaknesses. Assumptions The following information is available for preparation of the marginal costing cost statement ?/Unit Direct materials 0.04 Direct labour 0.15 0.19 exchange price 0.5 The firm production overheads include depreciation amounts to ?3,000 per month. For the first month, the gross revenue are forecasted to be 1000 units and 1,200 units volition be produced. A fixed selling cost of ?1,500 per month and a variable selling cost of ?0.02 per unit leave alone be budgeted. There are no opening stocks. Discussion The troupe is projected to maintain a current ratio of 1.66 (53,800/32,433), which is a very healthy liquidity level and which volition ensure that the company is able to benefit its short-term liabilities using short-term assets without difficulties. This also means that the companys financial position will be strong and it will be overweight for it to be declared bankrupt whatsoever. The company is expected to generate a shareholders equity of 42,248, a part of which will come from stipendiary in capital and the other part will be raised from the sale of new stock. Besides this, the company is expected to retain earnings of ? 5,041, which will be expected to grow substantially considering the company will continue to generate attractive wampum margins (Leonie, 2007). The forecasted balance sheet is represented in supplement 5. Appendix 4 represents the forecasted Income Statement. This statement shows that the company is going to make good money as revealed by the first course of studys net income, which amounts to ? 5,041. This is a substantial amount of profits considering this will be the first year of operation, when the company will incur substantial operating costs, especially on fixed assets. As such, it is expected that the company will generate handsome income from the second year of operation when the operating expenses will have dropped significantly. This remarkable performance will chiefly result from the huge sales (?50,000) that the company is expected to make because the soft drink products will be very popular with the customers. Huge sales are particularly where the company expects its sustainable growth to come from. Analyzing the cost statement (Appendix 1), it is apparent that the company will generate a gross profit margin of 62%, possibly indicating that the cost of sales will be relatively small, hence making the companys business more paid (Tamari, 1978). It is expected that this gross margin will increase substantially in the future. The profit margin of the company is 10% (5041/50,000 *100), which is somewhat lower because it is the firs t year of operation and the non-operating expenses are naturally high. After recovering from the shocks of struggling to break even, this margin is expected to grow significantly (Pendlebury and Groves, 2010). The cash flow statement (Appendix 4) shows that the company will be expected to generate enough cash, which is required to sustain growth. The fact that there is no deficit means that the cash generation will be adequate to outpace growth and hence not much additional financing will be borrowed from outside. More so, the company will be generating sufficient cash to pay its short-term needs. Therefore, when the credit markets become tight, the company will not experience much difficulty as it can considerably generate finance from internal resources considering its stable