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A small chain of retail stores selling outdoors equipment, Blue Ridge Bike and Hike (Blue Ridge) was expanding rapidly. The finance manager had to develop a financial plan for accommodating this growth and the investment it required. Clearly, the business was growing faster than could be financed from internal sources–-it had been increasing a long-term loan and had just ended the year with a higher-than-usual balance on its bank line of credit.
Introduce students to financial statement forecasting based on operating ratios, paying attention to “plugging” the financial gap. Build familiarity with financial ratios and basic T-account forecasting. Explore the link between operating and financing decisions. Identify the circularity that exists in a financial statement when interest expense is tied to forecast borrowings and how that might be handled. Build understanding of the need for both long-term and short-term (seasonal) financing.