FIN 512
Chapter 6: Discussion Question #4 (p. 223)
4. Why is it usually easier to forecast sales for seasoned firms in contrast with early-stage ventures?
Typically, it is easier to forecast a seasoned firm’s sales to that of an early-stage venture because the seasoned firm will have an operational history. Basing current sales on historical data is easier to do than trying to estimate sales based on little to no historical data to benchmark from. If you are a start-up / early-stage venture and you are tasked with forecasting sales, competitors’ operational histories and past sales data could possibly be used as a helpful reference. However, if you are the first of your kind, it will be especially difficult to predict / forecast sales or financials as there is nothing for you to use as a benchmark guide.
Chapter 6: Pharma BioTech Mini Case (pp. 229-230, Part A only)
Pharma Biotech is interested in developing an initial “big picture” of the size of financing that might be needed to support its rapid growth objectives for 2011 and 2012.
A. Calculate the following financial ratios (as covered in Chapter 5) for Pharma Biotech for 2010: (a) net profit margin, (b) sales-to-total-assets ratio, (c) equity multiplier, and (d) total-debt-to-total-assets. Apply the return on assets and return on equity models. Discuss your observations.
Net Profit Margin (NPM) = Net Income / Net Sales
NPM = 960 / 15,000 (in thousands)
NPM = 6.4%
Sales-to-total-assets (STTA) = Net Sales / Total Assets
STTA = 15,000 / 12,000 (in thousands)
STTA = 1.25
Equity Multiplier (EM) = Total Assets / Total Equity
EM = 12,000 / 12,000
EM = 1
Total-debt-to-total-assets (TDTTA) = (Short-term debt + Long-term debt) / Total Assets
TDTTA = (4,600 + 2,200) / 12,000
TDTTA = 6,800 / 12,000
TDTTA = 0.5666 or 0.567
Return on assets model is Net Income / Total Assets and gives us an indication of how profitable a company is in relation to its total assets.
ROA = Net Income / Total
4. Why is it usually easier to forecast sales for seasoned firms in contrast with early-stage ventures?
Typically, it is easier to forecast a seasoned firm’s sales to that of an early-stage venture because the seasoned firm will have an operational history. Basing current sales on historical data is easier to do than trying to estimate sales based on little to no historical data to benchmark from. If you are a start-up / early-stage venture and you are tasked with forecasting sales, competitors’ operational histories and past sales data could possibly be used as a helpful reference. However, if you are the first of your kind, it will be especially difficult to predict / forecast sales or financials as there is nothing for you to use as a benchmark guide.
Chapter 6: Pharma BioTech Mini Case (pp. 229-230, Part A only)
Pharma Biotech is interested in developing an initial “big picture” of the size of financing that might be needed to support its rapid growth objectives for 2011 and 2012.
A. Calculate the following financial ratios (as covered in Chapter 5) for Pharma Biotech for 2010: (a) net profit margin, (b) sales-to-total-assets ratio, (c) equity multiplier, and (d) total-debt-to-total-assets. Apply the return on assets and return on equity models. Discuss your observations.
Net Profit Margin (NPM) = Net Income / Net Sales
NPM = 960 / 15,000 (in thousands)
NPM = 6.4%
Sales-to-total-assets (STTA) = Net Sales / Total Assets
STTA = 15,000 / 12,000 (in thousands)
STTA = 1.25
Equity Multiplier (EM) = Total Assets / Total Equity
EM = 12,000 / 12,000
EM = 1
Total-debt-to-total-assets (TDTTA) = (Short-term debt + Long-term debt) / Total Assets
TDTTA = (4,600 + 2,200) / 12,000
TDTTA = 6,800 / 12,000
TDTTA = 0.5666 or 0.567
Return on assets model is Net Income / Total Assets and gives us an indication of how profitable a company is in relation to its total assets.
ROA = Net Income / Total