Final answer:
Forecasting financial statements allows a firm to use financial flexibility to balance future resources with future claims on resources. They achieve this through various ways of raising capital, such as from investors, reinvesting profits, or borrowing through banks or bonds. This planning ensures the firm can handle expenses and investments while managing liabilities.
Step-by-step explanation:
Forecasting financial statements is a crucial aspect of financial planning and analysis. Financial flexibility refers to a firm's ability to maneuver its financial resources to address unexpected needs or take advantage of new opportunities. Thus, when we say a firm will use its financial flexibility to project how it will balance future resources with future claims on resources, we are considering how a firm plans to manage its financial capital to cover expenses, investments, and liabilities.
Firms have several options for raising the financial capital needed for investments, such as a new machine, a building, or research and development. These include finance from early-stage investors, reinvesting profits, borrowing from banks or bonds, and selling stock. Each option comes with its own implications for a firm's financial flexibility and must be chosen with cautious consideration of future financial commitments and growth opportunities.
Therefore, the accurate answer to the student's question is that forecasting financial statements requires identifying financial flexibility in order to project how the firm will balance future resources with future claims on resources.