An important reason for making financial projections is forecasting whether the firm will need money from outside sources in the coming year. If the planning assumptions result in a need for extra money, it shows up in the plan as:
A)a negative net income.
B)a negative equity account.
C)an increase in debt.
D)a very substantial drop in revenue.

Question

Quizplus · Accepted Answer

If the financial projections show a need for extra money, it means that the expenses are likely to be higher than the revenues and the company may need to borrow money to cover the shortfall. This would result in an increase in debt, which is reflected on the balance sheet as a liability. A negative net income or equity account may also indicate financial stress, but an increase in debt is a more direct indicator of the need for funding. A drop in revenue may also be a factor, but it is not the only factor to consider when assessing the need for external financing.

An Important Reason for Making Financial Projections Is Forecasting Whether