BU283 Chapter 14: Textbook Notes
Document Summary
Sales forecast: sales revenue is equal to price times quantity, we forecast price and quantity by identifying drivers, a driver is an underlying economic. Learning objective 3: financial statement forecasting the percent of sales method is where most accounts are related to sales and therefore we use a sales forecast to generate forecasted statements. To calculate interest expense we take the product of the interest rate and the book value of debt from the end of the last period. This method underestimates the interest expense if new debt is added during the period: depreciation expense is not driven by sales it is related to fixed assets. Therefore depreciation is a function of fixed assets. The declining balance system deducts the fixed percentage of an assets value over time thus the annual depreciation expense is: book value = purchase price of asset accumulated depreciation. Accumulated depreciation = sum of depreciation expenses to the end of period t.
