financial planning and forecasting.pptx

7/24/2019 Financial Planning and Forecasting.pptx

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Financial Planning and

Forecasting


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Financial Planning Process

A firms financial plan involves decisions

about:

Liquidity

Working Capital

Inventories

Capital Budgeting

Capital Structure

Dividends


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The Financial Plan

Financial planningis the process of

evaluating the ipact of alternativeinvesting and !nancing decisions of the!r"

#very !nancial plan has three coponents$ % odel

Inputs

&utputs

The odelis a set of atheaticalrelationships 'et(een the inputs and theoutputs"


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The Financial Plan

Inputsto the odel ay include$ Pro)ected sales

Collections

Costs

Interest rates

#*change rates

The outputsof the !nancial plan are$

Pro fora !nancial stateents % set of 'udgets

Pro fora !nancial stateentsarepro)ected !nancial stateents"


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The Financial Plan The planning horizonis the length of time that the

nancial plan projects into the future. Short-term nancial plans

Usually have a planning horizon of one year orless.

Are detailed and very specic.

Long-term nancial plans

Usually have a ve- or ten-year planninghorizon.

Tend to be less detailed.

A planning cyclespecies ho fre!uently plansare revieed and updated.

The planning horizon is also reneed ith eachupdate.

Short-term plans are updated more fre!uently

than long-term plans.


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Financial Stateent %nalysis +using , of Salesethod-

"icri )rive #ompany

*ncome Statement

Actual '%%, orecast for '%%(

Sales /0%%%

#ost '01$1.'%

)epreciation $%%

Total 2p #ost '03$1.'%

45*T '6/.6*nterest 66

45T $7(.6

ta8es 9,%&: 36./;* 5efore


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inancial Statement Analysis 9using & of Sales method:

"icrodrive #ompany 5alance Sheet in 9million dollars:

Actual '%%, orcast '%%(

Assets

#ash $%ST *nvestments %

Accounts =eceivable /3(

*nventories 1$(

Total #A $%%%

;et


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%dditional Fund .eeded Let

A/S00 Percentage of required assets to

sales

L/S00 the increase in spontaneous

lia'ilities per dollar increase in sales"S10 current level of sales"

g0 pro)ected gro(th rate in sales"

S20 Total Sales pro)ected for the ne*tyear

M0 net pro!t argin on sales"

330 3etention rate" 4 0 5


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%dditional Fund .eeded

%F. 0 63equired increase in assets+ %/S1-7 4S8 5 6Spontaneous

increase lia'ilities + L/S1-74S8 5

6 Increase in 3etained #arnings +9S2

7 33- 8

Try to apply the a'ove forula for9icro Drive Incoe stateent andBalance Sheet to achieve the %F.Data"


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Short Ter Financial

Budgets

""#*tension of Financial

Planning


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Budget

% Budget is a detailed schedule ofthe !nancial activity and it can 'e ofthe follo(ing types as per the need

and requireent of the 'usiness$ Sales Budget

%dvertising Budget

Cash Budget % Budget can 'e a short ter as (ell as

long ter 'ut usually it is perceived to

'e a short ter plan of 'usiness (ork"


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Budget

Clearly stated strategic< operatingand !nancial objectives"

Assumptionson (hich the plan is

'ased"Descriptionof underlying strategies"

Contingency plans for eergencies"

Budgets< classi!ed 'y tie period

division

type


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Cash Budget

Cash 'udgets Pro)ect and suariEe cash ino(s and

outo(s"

Sho( onthly cash 'alances" Sho( any short>ter 'orro(ing needed to

cover cash shortfalls"

They are usually 'ased on sales forecasts"

They are usually constructed on a onthly'asis" 9ore frequent planning ay 'e (arranted"


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Pro'le %s a cash anager of Tyler Paints< you

are required to prepare a cash 'udgetfor %pril< 9ay< and Gune" Sales in the!rst three onths of the year (ere

H;11


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Continue"

Tyler collects :1, of its sales in the onth ofthe sale" %n additional ;?, is collected in theonth follo(ing the sale< and the reainingA?, is collected t(o onths after the sale"Purchases aount to =1, of ne*t onth@s sales K"G" KeinE Book Jalue vs" 9arket Jalue +2/:112-

Total Shares outstanding 0 A?1 illion

1,"#%alue&'(oo)e*uitycommon+et

-.ther,/!-costatshares0reasury

#,earnin2s3etained

##capitalinpaidAdditional

1!par&'$4"Shares5ommon


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Coon Stock

48ample> K"G" KeinE Book Jalue vs" 9arket Jalue+2/:112-

Total Shares outstanding 0 A?1 illion

billion$1#4!%alueMar)et

"!6sharesof7

$#!8sh9priceMar)et!!1January


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Preferred Stock

> Stock that takespriority over coon stock inregards to dividends"

;et orth> Book value of coonshareholder@s equity plus preferredstock"

loating-=ate Preferredstock paying dividends that vary (ithshort ter interest rates"


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Corporate De't

De't has the unique feature of allo(ing the'orro(ers to (alk a(ay fro their o'ligationto pay< in e*change for the assets of thecopany"

Default 3iskM is the ter used to descri'e thelikelihood that a !r (ill (alk a(ay fro itso'ligation< either voluntarily or involuntarily"

Bond 3atings Nare issued on de'tinstruents to help investors assess thedefault risk of a !r"


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Patterns of CorporateFinance

Firs ay raise funds fro e*ternalsources or plo( 'ack pro!ts ratherthan distri'ute the to shareholders"

Should a !r elect e*ternal!nancing< they ay choose 'et(een

de't or equity sources"


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Jenture Capital

@enture #apital

9oney invested to !nance a ne( !r

Since success of a ne( !r is highlydependent on the eort of the anagers Sale of securities opento all investors 'y an already pu'lic copany"

Shelf =egistration> % procedure that allo(s!rs to !le one registration stateent forseveral issues of the sae security"

financial planning and forecasting.pptx

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