Which of the following assumptions is not required by the percent of sales method?
A) The inventory turnover will remain constant during the forecast period.
B) The profit margin will remain constant during the forecast period.
C) Cash, as a percent of sales, will remain constant throughout the forecast period.
D) The debt to equity ratio will remain constant throughout the forecast period.

Question

Quizplus · Accepted Answer

The percent of sales method is used to forecast a company's financial statements based on historical relationships between sales and various line items on the financial statements. This method assumes that certain relationships between line items will remain constant during the forecast period, such as inventory turnover and profit margin. It also assumes that cash, as a percent of sales, will remain constant throughout the forecast period. However, it does not require that the debt to equity ratio remains constant.

Which of the Following Assumptions Is Not Required by the Percent