The Crimson Press Curriculum Center

First Page and the Assignment Questions:
Forecasting financial statements requires an understanding of both financial accounting and financial management. The former is concerned with the meaning of items on the balance sheet, the income statement, and the statement of cash flows. The latter focuses on the way managers can affect these items. In particular, financial management is concerned with the choices that managers make about (a) the use of debt or equity to finance assets, (b) the structure of debt, (c) the magnitude of net income, and (d) the management of cash. This note is concerned with matters of financial management. Its specific learning objectives are contained in Exhibit 1.
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Exhibit 1. LEARNING OBJECTIVES

   Upon completing this Note, you should know about:

1.   Some basic techniques for financial statement forecasting

2.    Two cash-related cycles:
        •   the operating cycle
        •   the financing cycle

3.   Three financial management concepts:
        •   Debt structure
        •   Leverage
        •   The role of profit

4.   The distinction between financial risk and business risk

5.   Issues related to financing fixed assets

6.   Issues related to financing growth

7.   Cost behavior and its relationship to forecasting financial statements

8.   The differential cost concept

9.   Techniques for undertaking alternative choice decisions concerning discontinuing a product line

10.   Several important principles associated with alternative choice decisions

11.   The concept of contribution and the structure of a contribution income statement