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When We Use the AFN Formula to Forecast the Additional

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When we use the AFN formula to forecast the additional funds needed,we are implicitly assuming that all financial ratios are constant.This means,for example,that if you plotted a graph of inventories versus sales,the regression line would be linear and would have a positive (non-zero) Y-intercept.


Definitions:

Cost-to-retail Ratio

The cost-to-retail ratio is a method used in inventory accounting to estimate the value of ending inventory using the ratio of cost to retail price.

Rising Prices

A situation in an economy where the general level of prices for goods and services increases over time.

Retail Inventory Method

An accounting method used by retailers to estimate inventory cost by calculating a cost-to-retail ratio.

FOB Destination

FOB Destination is a shipping term indicating the seller bears the shipping costs and maintains ownership until the goods reach the buyer's location.

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