Corporate financeLesson 1 of 1 in the course Financial Forecasting

Financial Forecasting: Statements, Analysis, and Ethical Assumptions

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Financial forecasting helps a firm prepare for future financial needs and make informed decisions. This lesson introduces the purposes of forecasting, the evidence used to create a forecast, and the importance of ethical judgment.

A financial forecast is an informed estimate of a firm’s future financial performance, based on historical data, analysis, and relevant information about the business and its environment. Forecasting is not simply guessing: it is a structured way to anticipate what the firm may need and what it may be able to achieve.

All flashcards

Financial forecast
An informed estimate of a firm's future financial performance based on historical data, analysis, and relevant information.
Net income and cash
Net income measures performance under accounting rules; cash-flow information shows cash generated and used.
Ethical forecasting
Using transparent, reasonable assumptions and making projections justified by available evidence.
Common-size income statement
An income statement that expresses each item as a percentage of net sales.
Statement connections
Net income contributes to retained earnings, while cash flows incorporate income-statement figures and balance-sheet changes.

Quiz questions

  1. Managers face pressure to present favorable results. Which approach is consistent with ethical forecasting?Answer: Use transparent assumptions and make projections reasonably supported by evidence.
  2. A firm borrows money and later repays part of the debt. How are these cash flows classified?Answer: Financing activities
  3. Where does net income from the income statement contribute to the balance sheet?Answer: Retained earnings within equity
  4. What does common-size balance sheet analysis make easier to compare across periods?Answer: The composition of assets, liabilities, and equity
  5. Which statement provides information about cash generated and used during a period?Answer: The statement of cash flows

Based on Principles of Finance by Julie Dahlquist, Rainford Knight (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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