Financial Forecasting Riordan Manufacturing

Financial forecasting allows financial managers to anticipate events before they occur, particularly the need for raising funds externally. An important consideration is that growth may call for additional sources of financing because profit is often inadequate to cover the net buildup in receivables, inventory, and other asset accounts.

When forecasting, one must take into account estimated future levels of receivables, inventory, payables, and other corporate accounts as well as its anticipated profits and borrowing requirements. From this data collecting financial managers must strategically plan the management of their business or suffer profit loss and financial loss from investors. Shareholders want their wealth to be maximized by the corporation in the future as well as the present. Poor strategic planning will result in

to anticipate monthly patterns of cash inflows and outflows. Some months represent particularly high or low sales volumes or may require taxes or capital expenditures. To finish the master budgeting process, Riordan would use information gathered from the master budget to prepare a budgeted balance sheet. A budgeted balance sheet would be used to project the financial status of Riordan.

To improve the quality of Riordan's master budget, managers need to know. Why the budget is being prepared? Who will read and use it? How the information will be presented? Where the information can be found?At Riordan there are two factors for implementing the 2005 fiscal budget, which are communication and support. Communication of expectations

Current RatioThe current ratio shows that Riordan during the years of 2003 and 2004 fell below the industry average by .06 and .07 respectively.

..."ratio of net income to net sales," (Porter, p.665) for the years ending 2004 and 2005, were 4.3% and 3.8% respectively. This shows that although sales increased