1. Financial forecasting is the educated guess of a company to determine income and expenses that will be expected in the financial budget for the company. A few advantages to financial forecasting, is planning ahead and the need for possible loans or outside investors. First, a business takes into consideration costs increases, such as shipping or materials, then makes the adjustments to ensure the off set of these increases. Second, start up companies will need loans and investors t get started.. The financial forecast will show when the startup company plans to make a profit. In both cases the forecast should be accurate as it is vital to the overall success of the business.
Bankers and other lenders use financial forecasting to base their decisions. If a start-up business is requesting a loan, the lender would first look at the forecasting, and then the other
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Pro-forma statements give an estimate of a company’s possible profit by removing one time charges. A company can use these statements to exclude anything the business believes takes away from the accuracy of its profit. One disadvantage to the pro-forma statements is they are not regulated as well as other statements under generally accepted accounting principles (GAAP). The biggest advantage to pro-forma statements is that it can provide a more accurate view of the outlook and financial performance of a company.
The process for developing pro-forma statements to secure outside financing. Investors and lenders want to see cash flows and income projected for each company. When looking at cash flow, a company should show its cash conversion cycle (CCC). A strong CCC shows how efficient a business is running and can be compared to other company in the industry.
3. Accounting data and financial forecasting go hand in hand with one another. Financial forecasting needs accurate accounting records, as well as accounting data relies on financial information. Both are critical to the success of any
...ainst the projected performance of the marketing process. Qantas preforms this efficiently by developing financial forecasts. This involves the collection of statistics to predict the profitability of the business. This is performed through a cost estimate providing details of how much the marketing plan is estimated to cost, and a revenue estimate referring to how much the marketing plan is expected to generate. Furthermore after reviewing this Qantas revises the success of the marketing plan to take corrective action where appropriate ensuring the success of the marketing process.
There are financial tools that can help make better financial decisions. One of these tools is the pro forma statement. The pro forma statement is based on certain assumptions and projections. Examples of pro forma statement include: balance sheets, income statements, and statements of cash flows. The pro forma statement provides a look at the potential results of financial decisions.
Firstly, pro-forma earnings does not adhere to the strict guidelines that are enforced by GAAP, purely because the computed earnings results are projected and can be calculated by any number of measures that companies want to include, as there is not universal guidelines that must be followed when reporting pro-forma earnings. These measures that are included, or excluded, are decided by the company and they may not be recurring, and quite possibly be a once off occurrence. The occurrence of certain measure for accounting need to be stable and not just unsystematic because then the reported earnings will not be a true and accurate indication of future company performance and thus misleading investors when making decisions. The most common unaccepted practice when calculating pro-forma earnings is for companies to exclude information that could quite possibly be information that is important for shareholders to be aware of. Some of these measures may be excluded by companies to improve their reporting or make their future earnings performance look more promising. Companies may exclude but are not limited to information such as redundancies, depreciation in assets and obsolete stock to name a few. The intentional exclusion of information, or manipulation of measures, is widely unaccepted because investors are not informed of what is included and excluded. Although most firms exclude
In addition to this, after the creation of the pro forma forecast, the analysts have to analyze the results and create an interpretation about its implications and determine whether the companies’ stocks are overvalued.
Since financial statement are analyzed by individual professionals the accountant has to make a choice out of various alternatives available. Hence the statements are never free from biased. 2. Ratios are incompetent to predict the future condition of business as accounting information are historical in
A cash flow statement records the actual movement of a company’s cash, it shows where cash has come in from and what has actually been paid during the year. The cash flow statement records cash movements from three activities: operating, financing and investing. Operating activities adjusts the profit for non-cash expenses and gains and the changed in working capital and provides the cash actually received after conducting operations. Financing activities record the financing of the company and investing activities records the capital expenditures of a company. It basically shows the ability for a company to generate cash, as many companies earn profit but fail due to the inability to fulfil its cash needs. Investors use the cash flow statement to calculate the ‘free cash flow’ which is calculated by deducting capital expenditures from the net cash from operating activities. This shows investors how much cash is available for the company to pay its dividends. The statement of cashflows is also helpful for existing investors to review where cash is being spent and how well it is being used (Daniel, Denis & Naveen 2010).
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
Accounting is the pillar of every company to measure its growth, loss, revenue , capital, its really specify the real terms in foam of figures and sometimes in tables, in accounting there are certain rules are obtained to make more accuracy while playing with figures.
Main view of this report is to explain how the accounting plays a major role in banking, finance and other sectors of business. To decide this, the following questions are explained as follows:
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
Financial statements ignore the deviations in price level. These statements are accounting for past rather than accounting for future. Hence they are of little value to management in taking
If we look at the contribution of Accounting to Financial Economic Thought, the initial idea of an individual, a firm or an economy is obtained on the basis of Financial Accounting information provided. An in-depth understanding of the financial accounting information provided will guide the decisions towards an optimal resource allocation.
Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.
Cash flow statements provide essential information to company owners, shareholders and investors and provide an overview of the status of cash flow at a given point in time. Cash flow management is an ongoing process that ties the forecasting of cash flow to strategic goals and objectives of an organization. The measurement of cash flow can be used for calculating other parameters that give information on a company 's value, liquidity or solvency, and situation. Without positive cash flow, a company cannot meet its financial obligations.
Business forecasting can be used in a wide variety of contexts, and by a wide variety of businesses. For example, effective forecasting can determine sales based on attendance at a trade show, or the customer demand for products and services (Business and Economic Forecasting, p.1). One of the most important assumptions of business forecasters is that the past acts as an important guide for the future. It is important to note that forecasters must consider a number of new information, including rapidly changing economic conditions and globalization, when creating business forecasts based on past sales.