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Learning Objectives
1. Understand the sources and uses of cash that are used in building a cash budget. 2.Explain how sales forecasts are used to predict cash inflow. 3. Understand how production costs vary in terms of cash flow timing. 4. Explain possible ways to cover cash deficits and invest cash surplus. 5. Prepare a pro forma income statement and a pro forma balance sheet.
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Despite setting up a cash reserve, the firm is projected to have cash shortfalls in 3 months and surpluses in 2 after all cash receipts and disbursements have been forecasted for the first half of 2010.
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Managers often figure in a small percentage of the forecasted sales as bad debts when preparing a cash budget.
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Payments for raw materials, labor costs, overheads such as utilities and rent, shipping costs, etc.
Like sales, there is often a time lag between when the firm receives and records the benefit, and when it actually makes the payment for it. The cash budget can be used as a handy planning document to keep track of the projected disbursements.
Depreciation is merely a tax write-off, not a cash disbursement, so should not be included in a cash budget.
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12.4 The Cash Forecast: Short-Term Deficits and Short-term Surpluses (continued)
Table 12.4 Monthly Cash Budget for Bridge Water Pumps and Filters
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Figure 12.6
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2010 growth rate =[ (2010 Sales/2009 sales)] -1 = (1.75m/1.2m) -1 2010 growth rate = 45.83%
2011 growth rate = =[ (2011 Sales/2010 sales)] -1 = (2.1m/1.75m) -1 2011 growth rate 20% 2-year average growth rate = (2011 Sales/2009 Sales)1/2 =1= (2.1m/1.2m)1/2 -1 2-year average growth rate =32.29% 2012 Sales Forecast =$ 2,100,000*(1.3229) = $2,778,090
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0.03
$11,666.67
$13,333
$16,333
$12,333
$11,000
$12,667
0.4
$155,556
$177,778
$217,778
$164,444
$146,667
0.5
$194,444
$222,222
$272,222
$205,556
0.07 1
$27,222
$31,111
$38,111
$1,056,667
$986,667
$985,556
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1 million units
Safety stock required = 15% of December sales = 150,000 units Beginning Inventory (October 2011) = 120,000 units Production needed in October = Dec. 09 Sales + Safety Stock Beg. Inventory
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Sales Revenue COGS SG&A Expenses Depreciation Expenses EBIT Interest Expense Taxable Income Taxes Net Income
2,300,000
$8,300,000
1,200,000
$7,100,000 $2,414,000.00 $4,686,000.00
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$5,125,000 $1,350,000 $6,475,000 $3,200,000 $1,650,000 $4,850,000 $11,325,000 $2,500,000 $7,805,000 $10,305,000 $21,630,000
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$8,280,000
$8,500,000
$9,615,000
$15,500,000
Goodwill
Intangible Assets Total Long-term Assets Total Assets
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3,500,000
1,350,000 $13,350,000 $21,630,000
3,500,000
1,350,000 $20,350,000 $29,965,000
Accounts Payable Other Current Liabilities Total Current Liabilities Long-Term Debt Other Long-term Liab. Total Long-Term Liabilities
$5,125,000 $1,350,000 $6,475,000 $3,200,000 $1,650,000 $4,850,000 $11,325,000 $2,500,000 $7,805,000 $10,305,000 $21,630,000
$8,200,000.0 $1,350,000 $9,550,000 $8,460,000 $1,650,000 $10,110,000 $16,585,000 $2,500,000 $7,805,000 $10,305,000 $29,965,000
Common Stock Retained Earnings Shareholders Equity Total Liab. And Sh. Equity
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