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Financial Analysis and Forecasting of Wesfarmers Limited

   

Added on  2019-10-31

9 Pages2069 Words96 ViewsType: 96
Finance
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Forecasts and Projections
Financial Analysis and Forecasting of Wesfarmers Limited_1

Question 1Return on Equity using DuPont analysis = Profit margin * Total asset turnover * Financial LeverageNet Income = $24Net Sales = $2000Total assets = $1200Total equity = $500Return on equity = (24/2000) * (2000/1200) * (1200/500)= 4.8%Question 2Current sales (S) = $10000Total assets (A) = $1200Spontaneous liabilities (L) = $100Profit margin (PM) = 1.2%Dividend pay-out ratio = 37.5%Retention rate (b) = 1-37.5 = 62.5%Increase in sales = $300 (15%)Additional Funds Required equation = (A*/S) ΔS - (L*/S) ΔS – S1 * PM* bAFN = (1200/10000) (300) – (100/10000) (300) – 1.2%*2300*0.625= $15.75 million
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Question 3The financial forecasting is important for a company in the strategic planning process. It is important to make a financial assessment of the past performance and future projections to financial success. The steps involved in financial forecasting process include:a)Define assumptions – this is the first step in financial forecasting to identify issues in forecasting and this will help in selecting the most appropriate method for forecasting.The general things to keep in mind while making Assumptions are the time horizon ofthe forecast, the political or legal issues relating to the forecast, the categorization of revenues and expenses and the objective of the forecasting policy.b)Collect information – information regarding the various department activities affecting the revenue and expenses should be gathered and forecasts can be made based on this statistical data.c)Preliminary analysis – an analysis of the past trends and patterns with respect to the environment makes the forecasting more accurate. The various trends to be studies in this step include business cycles and demographic trends. Whether or not the businesscycle affects the revenue or expenditure and is the demand affected by the change in population. Such analysis helps in making the forecasting qualitative.d)Selecting methods – there are various methods available for forecasting, selecting the most appropriate method for the business is the next step. There might be different forecasting methods for different programs in a business. The three basic models of forecasting include Regression, Extrapolation and Hybrid forecasting [ CITATION GFO17 \l 16393 ]e)Implement the selected method – this step includes making the forecast. A range of forecasts under different scenarios should be considered. Question 4Financial plan refers to making a decision regarding the amount of funds required to carry outthe operations of a company smoothly, identifying the various sources of funds available, selecting the most appropriate one and making policies for effective utilisation of acquired funds.
Financial Analysis and Forecasting of Wesfarmers Limited_3

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