Question 2.RQ.1: In what ways might projected financial statements help a bus...

Financial Management for Decision Makers

In what ways might projected financial statements help a business that is growing fast?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

When a business is growing fast, it is vital that managers maintain a balance between increases in the level of sales and the finance available to sustain this increase. The business must not pursue sales growth to the point where it becomes financially overstretched and then collapses.
Projected financial statements will show the impact of future changes in sales on the profitability, liquidity and financing requirements of the business. If the business shows signs of being unable to sustain the required level of sales growth in the future, corrective action can be taken.

Related Answered Questions

Question: 2.A.1

Assume that the managers of a business are considering only one option. Could projected financial statements still help them? ...

Verified Answer:

Where only one course of action is being considere...

Question: 2.2

The financial statements of Burrator plc for the year that has just ended are as follows: In line with previous years, a dividend of 50 per cent of the profit for the year was proposed and paid during the year. The following information is relevant for Year 9: 1.Sales revenue is expected to be 10 ...

Verified Answer:

To prepare the projected income statement, we calc...

Question: 2.5

Santos Engineering Ltd started operations on 1 January Year 1 and has produced the following forecasts for annual sales revenue: The following additional information has been provided: 1.The operating profit of the business is expected to be 20 per cent of the sales revenue throughout the four-year ...

Verified Answer:

We shall now prepare projected cash flow statement...

Question: 2.4

Relevant forecast information for Drago plc for next year is as follows: The following further information is available about forecast payments during next year: ...

Verified Answer:

The projected operating cash flows can be derived ...

Question: 2.3

The sales revenue figure for a business for the year was £34 million. The trade receivables totalled £4 million at the beginning of the year, but had increased to £5 million by the end of the year. Basically, the trade receivables figure is dictated by sales revenue and cash receipts. ...

Verified Answer:

Basically, the trade receivables figure is dictate...

Question: 2.RQ.4

Why is the sales forecast normally critical to the preparation of projected financial statements? ...

Verified Answer:

The sales forecast is critical because it will det...

Question: 2.RQ.3

Why would it normally be easier for an established business than for a new business to prepare projected financial statements? ...

Verified Answer:

An existing business may find it easier than a new...

Question: 2.RQ.2

‘The future is uncertain and so projected financial statements will almost certainly prove to be inaccurate. It is, therefore, a waste of time to prepare them.’ Comment. ...

Verified Answer:

It is true that the future is uncertain. It is als...

Question: 2.S-AQ.1

Quardis Ltd is a small business that imports high-quality laser printers. The most recent statement of financial position of the business is as follows:The following forecast information is available for the year ending 31 May Year 9: Sales are expected to be £280,000 for the year. Sixty per cent ...

Verified Answer:

(a) The projected income statement for the year en...

Question: 2.Act.2

Can you think why cash is so important to a business? ...

Verified Answer:

To survive, a business must have sufficient cash r...