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Net cash flows from financing activities consist of changes in borrowed funds (short-term and longterm),
changes in other long-term liabilities, changes in common stock, and dividends paid. The only
activities of a financing nature in this example are increases (or decreases) in bank loans outstanding.
The bank line of credit is the buffer that keeps assets equal to liabilities and stockholders‟ equity. As
assets grow with increases in inventories and accounts receivable, bank loans increase as well to
finance this growth. As the inventories are sold and the receivables are collected during slower
periods, the excess cash is used to repay the amounts borrowed. Banks typically require that the line of
credit be paid in full at some point during the year. Any excess funds generated after repayment of the
bank loans are invested in short-term marketable securities until they are required again to finance
seasonal growth in assets.
Forecasting
Sales budgets are influenced by a wide variety of factors, including general economic conditions,
pricing decisions, competitor actions, industry conditions, and marketing programs. Often the sales
budget starts with individual sales representatives or sales managers predicting sales in their particular
areas. The basic sales data are aggregated to arrive at a raw sales forecast that is then modified to
reflect many of the variables mentioned previously. The resulting sales budget is expressed in dollars
and must include sufficient detail on product mix and sales patterns to provide the information
necessary for making decisions about changes in inventory levels and production quantities.
Exhibit 11.7 Dell, Inc. annual sales, 1999-2008.
In addition to the input from sales personnel, companies frequently also utilize a number of
statistical techniques to estimate future sales. For example, Exhibit 11.7 is a graph of the Dell, Inc.‟s
annual sales from 1999 to 2008.
Sales appear to demonstrate a pronounced upward trend. How would one forecast sales for the next
three years? Projecting from the most recent sales level might understate the estimates if the last year