Torres has made a number of assumptions in the determination of the firm’s financial forecast. The assumptions are appropriate although she has not considered offering different types of goods depending on the location of a warehouse. This would mean that the assumption of the sales would be different and more realistic. The percentage of the cost of goods sold is also not realistic since it should depend on the location of the store with some being very low and other quite high. The value should not be almost the same as it is.
Reviewing Torres’ forecasted income statement as well as the common-size income statement, one can argue that the results expected cannot be attained. This is because it is not easy for a firm to make 100% sales each year as it is shown in the common-size income statement. The growth rate of the sales shown in the forecasted income statement is too high and unrealistic. The growth of the net income shown in the forecasted income statement is also too high and unrealistic with the assumption that there is no provision for losses.
The growth rate of new warehouses is too high such that it highly affects the cash flow to unrealistic values. It is evident that the firm’s growth is unrealistic bearing in mind that there is no room for growth of debts but only increasing rate of warehouse opening.
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