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What is weakness and how does affect financial planning

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The percent of sales model uses historical information to develop certain ratios such as sales to inventory or finished products, sales to debtors/receivables, and sales to cash. Sales are then forecasted based on the ratios. The percent of sales model is a financial planning model that assumes that most income statement and balance sheet accounts vary proportionally with sales. This model has a weakness related to working capital.

Problem 1: What is this weakness and how does it affect financial planning?

Problem 2: Also, explain the value of financial ratios and why they are important? How are they used by companies, by investors, by analysts?

Reference no: EM132844860

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