Forecasting Research Of Company’s Financing Needs Based On Percentage Of Sales Approach

Enterprises require financial forecast when they carry out normal production and operation as well as foreign investment activities, and one of the important contents of financial forecast is the forecast of financing needs. Scientific financial forecast can help enterprises to make reasonable financial plans, and raise needed money for enterprises’ development ahead of time. It is helpful for enterprises to expand reproduction, seize market opportunities, and it can also help enterprises to improve fund utilization efficiency, reduce the financial cost, promote the healthy development of enterprises at the same time.percentage of sales approach is one of the most commonly used method of enterprise capital demand prediction because of simplicity and practicability. This method assumes that there is a fixed proportion relationship between the sensitive items of income statement and balance sheet and sales, and predict the annual balance sheet value of the items through the estimated annual sales and the proportional relationship, and finally calculate the External Financing Needed through the accounting equation, namely External Financing Needed= estimated Total Assets-estimated Total Liabilities-estimated Shareholders’ Equity. However, the assumptions of traditional percentage of sales approach don’t coincide with the reality of the enterprise。Firstly, as the change of economic environment and the internal economic environment that companies facing, assets and liabilities’percentage of sales are not invariable, secondly, the division of sensitive and non-sensitive items is also not invariable. Finally, traditional percentage of sales approach just uses one base accounting period’s income statement and balance sheet of enterprise, percentage of sales calculated by the two tables and base period sales does not have a strong representativeness, forecasting each item with base accounting period’s percentage of sales clearly doesn’t conform to the actual situation of the enterprise. Therefore, there are great theoretical and practical value in modifying percentage of sales approach.The steps of modifying percentage of sales approach in this paper are as follows, which is also the possible innovations in this paper at the same time, First of all, a concept of time value of money is introduced. Because of the need for considering the financial statements of the enterprise for several accounting periods, and the big demand for some enterprises’ operating funds, therefore, it is necessary to consider the time value of money problems. Secondly, inflation factor should be considered which is a common economic phenomenon and has important implications for enterprises’ capital demand. Thirdly, it is analyzed that the relationship between all items of enterprise in several accounting period and value of sales by introducing the regression analysis, which is not just limited to the base accounting period. Through applying the modified percentage of sales approach and the traditional percentage of sales approach into specific case and checking the results, it is found that modified percentage of sales approach is more accurate than the traditional one in calculating the fund demand. As a result, the modified percentage of sales approach has higher theoretical and practical application value.