The forecasts of financial statements forecasts that will be presented include forecasts for turnover, profit margin forecasts, business value forecasts, and cash flow forecasts. Additionally, the company uses marginal costing on a sales/production basis to determine the cost of the variables whereas the fixed costs do not depend on the level of activity. This pitch will play a vital role to the investors in persuading them to finance the new product. Turnover measures the ability of a company to use its assets in generating sales (Wild, Bernstein &Subramayan, 2001). various turnover ratios are useful to investors which include accounts receivable turnover and inventory turnover.
The accounts receivable turnover of 0.94 shows that Martez Company is more efficient in managing its credit policy thus eliminating the possibility of realizing bad debts. This is a good indicator to the investors as they are assured that their resources will not be lost to the debtors who refuse to pay. Another turnover ratio is the inventory turnover ratio which is a ratio that shows the efficiency of the company in selling its products to generate sales that is the number of times that the inventories are converted into sales within a year.
An inventory turnover of 1.25 implies that the Martez Company is very efficient in converting the inventory at hand into sales and therefore more revenue will be generated as shown in the forecast. The investors will be interested to see this forecast of the inventory turnover to know how efficient Martez is in generating revenues. Profit margin is a profitability ratio that shows how effectively the cost of production is controlled by distribution and administration expenses and also the financing cost (Eriotis, 2005).
One way of measuring the value of the business is by using the assets on the balance sheet (Meigs & Meigs, 1993). The total value of the assets on the balance sheet is regarded as the company’s investment and therefore shows the true value of the company.
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