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Financial Forecasting and Pro Forma Analysis

A detailed study of financial forecasting, pro forma analysis, and corporate fund management.

Ava Martinez
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Financial Forecasting and Pro Forma Analysis: A ComprehensiveStudy of Corporate Fund Requirements, Asset Management, andFinancial Projections1.AFN equationCarter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%.Its assets totaled $3 million at the end of 2012. Carter is at full capacity, so its assets must grow inproportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 ofaccounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin isforecasted to be 7%, and the forecasted retention ratio is 40%. Use the AFN equation to forecast theadditional funds Carter will need for the coming year. Write out your answer completely. For example, 5million should be entered as 5,000,000. Round your answer to the nearest cent.$332,000AFN= (A*/S0)S–(L*/S0)S–MS1(RR)=$5,000,000$3,000,000$1,000,000–$5,000,000$500,000$1,000,000–0.07($6,000,000)(0.4)= (0.6)($1,000,000)–(0.1)($1,000,000)–($420,000)(0.4)= $600,000–$100,000–$168,000= $332,000.2.Problem 17-2AFN equationCarter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by20%. Its assets totaled $5 million at the end of 2012. Carter is at full capacity, so its assets must grow inproportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 ofaccounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profitmargin is forecasted to be 6%, and the forecasted retention ratio is 40%. Use the AFN equation to forecastCarter's additional funds needed for the coming year. Write out your answer completely. For example, 5million should be entered as 5,000,000. Round your answer to the nearest cent.$756,000AFN=)40,000)(0.006($06.000,000)(0.1)($1,0$1,000,000$5,000,000,000,0005$−−= (1)($1,000,000)–$100,000–$144,000= $1000,000–$244,000= $756,000.Now assume the company's assets totaled $3 million at the end of 2012. Is the company's "capitalintensity" the same or different comparing to initial situation?_________________

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