Financial Forecasting: Riordan Manufacturing

Financial Forecasting: Riordan Manufacturing

Introduction

Financial forecasting allows financial managers to anticipate events before they occur, particularly the need for raising funds externally. An important consideration is that growth may call for additional sources of financing because profit is often inadequate to cover the net buildup in receivables, inventory, and other asset accounts.

When forecasting, one must take into account estimated future levels of receivables, inventory, payables, and other corporate accounts as well as its anticipated profits and borrowing requirements. From this data, collecting financial managers must strategically plan the management of their business or suffer profit loss and financial loss from investors. Shareholders want their wealth to be maximized by the corporation in the future as well as the present. Poor strategic planning will result in investors driving the stock prices of a company down. When companies release their quarterly or annual forecast for profits investors use this information as a tool to invest. Relying on the company to meet their projected forecast or better. When profit warnings are issued at the end of the period investors become nervous and trade their stocks to reduce their risk of loss. With numerous stocks un-purchased, the company loses their capital and in-turn forces the price of the stock to drop. Revenue from profits alone are not enough to sustain a business, companies need to raise capital. By strategically planning on how successfully to meet profit goals and maximize shareholder wealth companies will continue to grow.

Riordan Manufacturing is a global plastics manufacturer employing 550 people with projected annual earnings of $46 million. The company is wholly owned by Riordan Industries, a Fortune 1000 enterprise with revenues in excess of $1 billion. Its products include plastic beverage containers produced at its plant in Albany, Georgia, custom plastic parts produced at its plant in Pontiac, Michigan, and plastic fan parts produced at its facilities in Hang Zhou, China. The company's research and development is done at the corporate headquarters in San Jose. Riordan's major customers are automotive parts manufacturers, aircraft manufacturers, the Department of Defense, beverage makers and bottlers, and appliance manufacturers (Riordan, 2007).

The data presented in Riordan's Economic Forecast indicates positive economic conditions for Riordan Manufacturing and opportunities. According to the operating and cash budget for 2005 interest expenses were budgeted at a low $257,400 for the purpose of an increased spending in research and development expenses of $903,000 for the year with capital expenditures of $250,000 in October 2004, January 2005, and $350,000 in April 2005.