Which of the following statements is correct?

A) The most important step when developing pro forma financial statements is to determine the breakdown of common equity between common stock and retained earnings.
B) The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.
C) In a financial plan, the way that liabilities and owner's equity are projected to change depends on the firm's sales forecast.
D) The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.

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Rachel Oliva · Accepted Answer

Final Answer : B, Explanation :  Forecasting future sales is critical in determining financial requirements as it has a direct impact on revenue, which then affects expenses, profitability, and ultimately, the firm's financial needs. Choices A, C, and D are also important considerations in financial planning and analysis but do not represent the most critical step.

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