Module 5: Session 5 1

Module 2: Session 5

BUSINESS PLAN: LONG TERM PROJECTIONS

Module 5: Session 5 2

1) To make long term performance projections

2) To make long term cash flow projections

3) To differentiate between long term profits and cash using profit and cash flow projections

4) Review long term profitability and cash flow and make appropriate adjustments

Session Objectives

Module 5: Session 5 3

Make assumptions on growth in works, revenues and costs

Identify long term investment needs Make assumptions on capital development needs

and preliminary capital structure. Economic assumptions on price and costs Assumption on the long term horizon such as on

drawings, asset replacement, taxation. Identify capital needs and work backward to

restructure capital.

Procedure for 5 year forecasting

Module 5: Session 5 4

Generate the income and the cash flow out of the forecasted data and analyze it.

Identify emerging patterns Work out revenue trends Work out cost trends Work out profit and loss in long term Work out cash flow Derive balance sheets

Analysis

Module 5: Session 5 5

Year Yr 1 Yr 2 Yr 3 YR 4 YR 5 TotalRevenues Revenues from other sources TotalExpenditure:

Materials Administration and overheads LabourMachinery and equipmentStart up costsDepreciationInterest on loans

TotalProfit/loss

Long term profit projection format

Module 5: Session 5 6

Year Yr 2 Yr 2 Yr 3 YR 4 YR 5 TotalAccounts receivablesReceipts from other sources Capital from owners or term loansTotalPAYMENTS:

Materials suppliersAdministration and overheads LabourEquipment suppliersDrawings or dividendsTaxes paid

TotalNET CHANGE IN CASHBalance from previous periodBalance carried to next period

Long term cash flow projection format

Module 5: Session 5 7

1) Using assumptions in case study develop a performance forecast for five years

2) Make five year cash flow projections3) Note any emerging trends in profit and cash

flow4) Propose strategies that may be undertaken

by Munaku to improve both profitability and cash flow Relate the strategies to your company.

Activity

Module 5: Session 5 8

THE END

Q & A