Question

1. Explain why the calculated forecasted cash balance for a company is crucial to understanding how a company will be financed in the future.

2. Describe the difference between the full forecast of financial statements and the parsimonious method. When is one preferable to the other?

3. Explain the difference between organic and acquired growth.

Answer 1

1. The company needs forecasted cash flow because of the following reasons:

a) Identify future shortfalls in advance so that necessary arrangements can be made

b) Make sure critical payments are made so that vendors do not stop supplies

c) Know if any customer is turning bad debt.

2. Difference between full forecast and parsimonious method is that in parsimonious method the forecast is done on a sample say only for 1 segment of the business and the forecast results are applied to the whole company. Full forecast means the financials are forecast for the whole company all the verticals. The Full forecast is preferred for better accuracy.

3. Organic growth means the company grows through expansion of the existing business and using the existing set up. Acquired growth means the company merges or acquires the other company and grows in scale and size