Chapter 12 study guide

Topical review

• Determine sensitivity of balance sheet and income statement items to changes in sales
• Compute Additional Funds Needed (AFN)
  • Forecast financial statements using percent of sales - project financial statements
  • Discuss the effects of financing feedbacks
  • Use AFN formula (shortcut) - explain difference in AFN results from pro forma projections
• Analyze the effects of operating changes on AFN
  
  • Review financial ratios and other calculations (e.g., FCF, ROIC)
  • “What if” questions
• Discuss the effects on forecasting balance sheet items under the following conditions:
  
  • Fixed asset capacity
  • Lumpy fixed assets
  • Economies of scale

Definitions

• Pro forma financial statements, AFN, AFN equation, self-supporting growth rate, financing feedbacks
• Spontaneous liabilities, payout ratio, retention ratio, capital intensity ratio
• Excess capacity, lumpy assets, economies of scale

Basic numerical questions from textbook
#1, 6