EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
17th Edition
ISBN: 9781260464900
Author: BLOCK
Publisher: MCGRAW-HILL LEARNING SOLN.(CC)
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Textbook Question
Chapter 4, Problem 1DQ
What are the basic benefits and purposes of developing pro forma statements and a cash budget? (LO4-1)
Expert Solution & Answer
Summary Introduction
To explain: The benefits of pro forma statements and cash budget.
Introduction:
Pro Forma Statements:
These are also known as projected financial statements and are an estimation of the financial position of a firm for a given period. These are useful in addressing 'what if' scenarios, determining future cash requirements, and submitting financial proposals.
Cash Budget:
It refers to the budget of expected cash receipts and cash payments. It helps in determining the expected cash surplus and deficit. The purpose of making a cash budget is to gauge the financing needs of a company and estimate its cash position.
Answer to Problem 1DQ
Pro forma statements assist in determining the anticipated inventory levels, receivables, and payables. Additionally, these also help in determining financing requirements. The benefits of cash budget include better credit terms with customers and adequate liquidity during peak seasons.
Explanation of Solution
The following are the benefits of pro forma statements.
i) Pro forma statements allow a firm to estimate its future financing requirements.
ii) These help in determining expected levels of inventory, receivables, and payables.
iii) The formulation of these statements enables a firm to anticipate its profit or loss that it might incur in the future.
The following are the benefits of a cash budget.
i) A cash budget allows a firm to establish credit terms for customers without causing a liquidity crunch.
ii) A cash budget helps a firm in avoiding liquidity issues during its peak business periods.
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Chapter 4 Solutions
EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
Ch. 4 - What are the basic benefits and purposes of...Ch. 4 - Explain how the collections and purchases...Ch. 4 - With inflation, what are the implications of using...Ch. 4 - Explain the relationship between inventory...Ch. 4 - Prob. 5DQCh. 4 - Discuss the advantage and disadvantage of level...Ch. 4 - What conditions would help make a percent-of-sales...Ch. 4 - Prob. 1PCh. 4 - Philip Morris expects the sales for his clothing...Ch. 4 - Galehouse Gas Stations Inc. expects sales to...
Ch. 4 - The Alliance Corp. expects to sell the following...Ch. 4 - Prob. 5PCh. 4 - Cyber Security Systems had sales of 3,500 units at...Ch. 4 - Dodge Ball Bearings had sales of 15,000 units at...Ch. 4 - Sales for Ross Pro’s Sports Equipment are expected...Ch. 4 - Vitale Hair Spray had sales of 13,000 units in...Ch. 4 - Delsing Plumbing Company has beginning inventory...Ch. 4 - On December 31 of last year, Wolfson Corporation...Ch. 4 - At the end of January, Higgins Data Systems had an...Ch. 4 - At the end of January, Mineral Labs had an...Ch. 4 - Convex Mechanical Supplies produces a product with...Ch. 4 - The Bradley Corporation produces a product with...Ch. 4 - Sprint Shoes Inc. had a beginning inventory of...Ch. 4 - J. Lo’s Clothiers has forecast credit sales for...Ch. 4 - Simpson Glove Company has made the following sales...Ch. 4 - Watt’s Lighting Stores made the following sales...Ch. 4 - Ultravision Inc. anticipates sales of $290,000...Ch. 4 - The Denver Corporation has forecast the following...Ch. 4 - Wright Lighting Fixtures forecasts its sales in...Ch. 4 - The Volt Battery Company has forecast its sales in...Ch. 4 - Graham Potato Company has projected sales of...Ch. 4 - Harry’s Carryout Stores has eight locations. The...Ch. 4 - Archer Electronics Company’s actual sales and...Ch. 4 - Prob. 27PCh. 4 - The Manning Company has financial statements as...Ch. 4 - Conn Man’s Shops, a national clothing chain, had...
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