Week 5 What to do with Budgeted Statements

What to do with budgeted, or pro forma financial statements:

Once the pro forma financial statements have been developed, managers can do some ratio analysis on the forecast to see if they like the results:

• If they do like the results, they can simply let the future take its course
• If they don't like the results, they can take management action to change things

Also, don't forget, when the forecast is done, managers must plan on how to raise the External Financing Required (EFR) if any.

An Important Observation
As the growth rate in sales goes up, so does External Financing Required. As a result, many businesses can get into trouble by "growing too fast". Even though they're making money (on the income statement) they don't have enough cash to support their growth.