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Question
Which of the following is the preferred method to forecast the financing items on the balance sheet?
a) Assume that debt and equity are constant. Sum all forecasted assets except excess cash, and all liabilities and existing debt and equity. Plug the model using newly issued debt or excess cash.
b) Financing items should be forecasted first, taking into consideration the future funding needs of the company. Correspondingly, the assets that the raised capital will fund should then be adjusted.
c) Assume that all liabilities and equity will grow at the same rate as revenue growth.
d) Assume that debt and equity will grow at the same constant rate in all years going forward.
Answer
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