7/24/2019 Financial Planning and Forecasting.pptx
1/28
Financial Planning and
Forecasting
7/24/2019 Financial Planning and Forecasting.pptx
2/28
Financial Planning Process
A firms financial plan involves decisions
about:
Liquidity
Working Capital
Inventories
Capital Budgeting
Capital Structure
Dividends
7/24/2019 Financial Planning and Forecasting.pptx
3/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
4/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
5/28
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.
7/24/2019 Financial Planning and Forecasting.pptx
6/28
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
7/24/2019 Financial Planning and Forecasting.pptx
7/28
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 $%%%
;et
7/24/2019 Financial Planning and Forecasting.pptx
8/28
%dditional Fund .eeded Let
A/S00 Percentage of required assets to
sales
L/S00 the increase in spontaneous
lia'ilities per dollar increase in sales"S10 current level of sales"
g0 pro)ected gro(th rate in sales"
S20 Total Sales pro)ected for the ne*tyear
M0 net pro!t argin on sales"
330 3etention rate" 4 0 5
7/24/2019 Financial Planning and Forecasting.pptx
9/28
%dditional Fund .eeded
%F. 0 63equired increase in assets+ %/S1-7 4S8 5 6Spontaneous
increase lia'ilities + L/S1-74S8 5
6 Increase in 3etained #arnings +9S2
7 33- 8
Try to apply the a'ove forula for9icro Drive Incoe stateent andBalance Sheet to achieve the %F.Data"
7/24/2019 Financial Planning and Forecasting.pptx
10/28
7/24/2019 Financial Planning and Forecasting.pptx
11/28
Short Ter Financial
Budgets
""#*tension of Financial
Planning
7/24/2019 Financial Planning and Forecasting.pptx
12/28
Budget
% Budget is a detailed schedule ofthe !nancial activity and it can 'e ofthe follo(ing types as per the need
and requireent of the 'usiness$ 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"
7/24/2019 Financial Planning and Forecasting.pptx
13/28
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
7/24/2019 Financial Planning and Forecasting.pptx
14/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
15/28
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
7/24/2019 Financial Planning and Forecasting.pptx
16/28
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
7/24/2019 Financial Planning and Forecasting.pptx
22/28
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
7/24/2019 Financial Planning and Forecasting.pptx
23/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
24/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
25/28
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"
7/24/2019 Financial Planning and Forecasting.pptx
26/28
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"