chapter 10 revised

7/27/2019 Chapter 10 Revised

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PowerPoint Presentation by Charlie Cook

The University of West Alabama

Copyright 2006 Thomson Business & Professional Publishing.

All rights reserved.

Part 3 Developing the New

Venture Business Plan

The Financial Plan

Part 1:Projecting Financial

Requirements


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 104

Understanding Financial Statements

Income StatementA report showing the profit or loss from a firms

operations over a given period of time.

How profitable is the business?

SalesExpenses = Profits

Revenue from product or service sales

Costs of producing product or service (cost of goods sold)

Operating expenses (marketing, selling, general and

administrative expenses, and depreciation)

Financing costs (interest paid)

Tax payments


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The Balance Sheet

Balance SheetA report showing a firms assets, liabilities, and

owners equity at a specific point in time

Total Assets = Outstanding debt + Owners equity


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Balance

Sheets for

Petri &

AssociatesLeasing, Inc.,

for December

31, 2004 and

2005

Exhibit 10.4


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Profits Versus Cash Flows

Accrual-Basis AccountingA method of accounting that matches revenues when

they are earned against the expenses associated with

those revenues

Sales reflect both cash and credit (noncash) sales Inventory purchased on credit is a noncash expense

Depreciation is a noncash expense

Income tax is accrued and may not be entirely expensed

Cash-Basis AccountingA method of accounting that reports transactions only

when cash is received or a payment is made


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The Fit of the Income Statement and the Balance Sheet

Exhibit 10.5


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The Cash Flow Statement

Cash Flow StatementA financial report showing a firms income (cash)

when it is received and expenses when they are paid.

Cash flows from normal operations (operating activities)

Cash flows related to the investment in or sale of assets(investment activities)

Cash flows related to financing the firm(financing activities)



Financial Forecasting

Pro Forma Financial StatementsStatements that project a firms financial performance

and condition

Purposes of pro forma statements:

How profitable can the firm be expected to be, given theprojected sales levels and the expected sales expenserelationships?

What will determine the amount and type of financing (debt

or equity) to be used? Will the firm have adequate cash flows? If so, how will they be

used; if not, where will the additional cash come from?



Exhibit 10.9

Assets-to-Sales-Financing Relationships



Good Forecasting Requires

Good Judgment

Practical Suggestions

Develop realistic sales projections.

Build projections from clear assumptions about marketing and

pricing plans. Do not use unrealistic profit margins.

Dont limit your projections to an income statement.

Provide monthly data for the upcoming year and annual data for

succeeding years.

Avoid providing too much financial information.

Be certain that the numbers reconcileand not by simply

plugging in a figure.

Follow the plan.

chapter 10 revised

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