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Financial Forecasting for Compass Group Plc - Case Study Example

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The paper "Financial Forecasting for Compass Group Plc" discusses that all elements of the projected consolidated income statement and balance sheet are prepared using CAGR and other related assumptions including that of exceptional items, financing cost and taxation in particular. …
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Financial Forecasting for Compass Group Plc
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Download file to see previous pages It is noted that the company prepares its financial statements under IFRSs and for projections the same approach will be used for projected financial statements. All elements of both financial statements have been used for projections. However for the purpose of the current paper, the main headings of both financial statements are shown in calculations and also additional disclosures are made to assist the financial statement analysis in Part B. Furthermore, for taxation purpose and interest payment assumptions are made based on the company’s disclosure in their latest annual report 2008. In part B for the purpose of carrying out the financial ratio analysis a time series approach has been used by comparing ratios calculated on the basis of new projections with those based on the annual report of 2008.
Developing projected financial statements are important accounting procedures which the company heavily invest in. These projections help companies to plan and oversees their operations to highlight any variations between actual and expected figures. However, the preparation of projected financial statements needs to address certain issues. Most importantly the accuracy and relevance of the information projected are subjective. It is a common practice that companies develop projected financial statements based on past experiences. The availability and accuracy of data collected from previous years are crucial. The basis used for projections vary from company to company however justification for the basis to be acceptable to its users is important. This ensures that the company’s overall objective is achievable and managers who are believed to For companies it is important to form an acceptable basis for projections as managers tend to understate their targets and employees often feel overburden by targets set from above. Investments decisions based on such projections depend upon the credibility and correctness of the assumptions made by accountants when preparing their forecasts. It is therefore very important to make reasonable projections. Moreover, companies often change their accounting policies which could have an impact on recognition and measurement of different elements of financial statements. ...Download file to see next pagesRead More
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