ne APN equation provides useru forecastng proces s that ail of dne im V which then feeds into the firm's balance sheet. Management looks at operating ratios and their relationship with industry and benchmark averages. The forecasted income statement begins with the prior year's income statement and is adjusted for the sales growth forecast. Select Some inputs for the income statement are not under the firm's control - for example, tax and interest rates. The forecasted balance sheet is calculated from asset ratios that management has reviewed and changed based on industry and benchmark averages. . Excel spreadsheet is used for this analysis because changes in assumptions, financing, and ratios can be made to the statements to review alternative scenarios. The impact of these changes on the firm's forecasted financial statements ultimately can be used to improve the firm's operations. Quantitative Problem: At the end of last year, Edwin Inc. reported the following income statement (in millions of dollars): Sales $4,150.00 Operating costs excluding depreciation 3,003.00 EBITDA $1,147.00 Depreciation 330.00 EBIT Interest EBT Taxes (40%) Net income $817.00 150.00 $667.00 266.80 $400.20 Looking ahead to the following year, the company's CFO has assembled this information: • Year-end sales are expected to be 6% higher than $4.15 billion in sales generated last year. • Year-end operating costs, excluding depreciation, will equal 70% of sales. • Depreciation costs are expected to increase at the same rate as sales. • Interest costs are expected to remain unchanged. • The tax rate is expected to remain at 40%. On the basis of this information, what will be the forecast for Edwin's year-end net income? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Enter all values as positive numbers. Do not round intermediate calculations. Round your answers to two decimal places. (in millions of dollars) Sales Operating costs excluding depreciation EBITDA Depreciation EBIT Interest EBT Тахes
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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