Can you help me respond /come back to this answer.

There are two methods used to predict future cash needs. Below a brief explanation of each:

One method is the pro forma method. This method starts with looking at the pro forma income statement. The pro forma income statement is a forecast of future sales, expenses, and Income. The pro forma income statement is then used to obtain the cash budget. The next step is the pro forma balance sheet, which uses cash as the balancing figure to determine future assets, liability, and stock holders equity. A pro about the pro forma method is that it is more in depth and more precise than the percent of sales method. The con is that if the assumptions used are inaccurate then the prediction is going to be wrong.

Another method is using the percent of sales method. This method is used making an assumption that the accounts on the balance sheet will keep a set percentage in relationship to sales. Then the change in sales level can be determined and used to find out the financing needs. The pro about the percent of sales method is that it is less intricate than the pro forma method. The con is that the method is so broad and is easy to skew the prediction of future cash needs.

Personally, I would use the percent of sales method for its simplicity. Either method there are assumptions being made so I would rather use the simpler one. I could see myself using the percent of sales method in my line of work (construction).