Fin 512 Week 3 Homeowrk
FI 512 Week 3 Answer Key
Chapter 6
4. Why is it usually easier to forecast sales from seasoned firms in contrast with early-stage ventures?
It is usually easier to forecast a seasoned firm’s sales compared to early-stage ventures because a seasoned firm generally has an operating history. The forecast of the firm’s financials therefore could begin with the firm’s historical sales and the past relationships between sales and the other asset and liability accounts. Early-stage ventures have little or no useful historical operating performance against which to benchmark. Competitors’ operating histories, however, may provide a useful reference. Nonetheless, when a venture is the pioneer in an industry, it is especially difficult to forecast its financials, since there are no historical or competitor benchmarks to act as a guide to the projections.
MINI CASE: PHARMA BIOTECH CORPORATION
The Pharma Biotech Corporation spent several years working on developing a DHA product that can be used to provide a “fatty acid” supplement to a whole variety of food products. DHA stands for docsahexaenoic acid, an omega-3 fatty acid found naturally in cold water fish. The benefits of fatty fish oil have been cited in studies of the brain, eyes, and the immune system. Unfortunately, it is both difficult to consume enough fish to get the benefits of DHA and most individuals might be concerned about the taste consequences associated with adding fatty fish oil to eggs, ice cream, or chocolate candy. To counter these constraints, Pharma Biotech and several competitors have been able to grow algae and other plants that are rich in DHA. The resulting chemical compounds then are used to enhance a variety of food products.
Pharma Biotech’s initial DHA product was designed as additives to dairy products and yogurt. For example, the venture’s DHA product was added to cottage cheese and fruit-flavored yogurts to enhance the health benefits of those products. After the long
Chapter 6
4. Why is it usually easier to forecast sales from seasoned firms in contrast with early-stage ventures?
It is usually easier to forecast a seasoned firm’s sales compared to early-stage ventures because a seasoned firm generally has an operating history. The forecast of the firm’s financials therefore could begin with the firm’s historical sales and the past relationships between sales and the other asset and liability accounts. Early-stage ventures have little or no useful historical operating performance against which to benchmark. Competitors’ operating histories, however, may provide a useful reference. Nonetheless, when a venture is the pioneer in an industry, it is especially difficult to forecast its financials, since there are no historical or competitor benchmarks to act as a guide to the projections.
MINI CASE: PHARMA BIOTECH CORPORATION
The Pharma Biotech Corporation spent several years working on developing a DHA product that can be used to provide a “fatty acid” supplement to a whole variety of food products. DHA stands for docsahexaenoic acid, an omega-3 fatty acid found naturally in cold water fish. The benefits of fatty fish oil have been cited in studies of the brain, eyes, and the immune system. Unfortunately, it is both difficult to consume enough fish to get the benefits of DHA and most individuals might be concerned about the taste consequences associated with adding fatty fish oil to eggs, ice cream, or chocolate candy. To counter these constraints, Pharma Biotech and several competitors have been able to grow algae and other plants that are rich in DHA. The resulting chemical compounds then are used to enhance a variety of food products.
Pharma Biotech’s initial DHA product was designed as additives to dairy products and yogurt. For example, the venture’s DHA product was added to cottage cheese and fruit-flavored yogurts to enhance the health benefits of those products. After the long