{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

FINA 330 - Fall 2009 - Chapter 4 Notes

FINA 330 - Fall 2009 - Chapter 4 Notes - CollegeofBusiness...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Northern Illinois University College of Business FINA 330 – Corporate Finance Prof. Adam Yore LONG-TERM FINANCIAL PLANNING AND GROWTH Long-Run Financial Planning Financial Planning is the process of projecting the future financial position of the firm  and reviewing how that projection compares with various financial goals. Financial  planning provides a road map for how the firm’s financial goals will be achieved in the  upcoming years.  Long-term planning deals with the impact that growth has on the firm’s financials and  identifies whether the firm’s existing investment and financing policies are equipped to  handle it.  The   firm’s   ____________________   decisions   and   its   ____________________  decisions interact with one another and are not separable. Elements of Financial Planning To develop the long-run financial plan, the financial manager must establish the basic  elements of the firm’s financial policy: Investment in New Assets Degree of Financial Leverage Cash Paid to Shareholders Liquidity Requirements Financial Planning Process
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The financial planning process involves: Setting a Planning Horizon Short-run decisions  Long-run decisions Aggregation of All Divisions Realistic Assumptions Develop Scenarios Role of Financial Planning Committing to financial planning forces you to: Examine interactions Explore options Avoid surprises Ensure feasibility and internal consistency Financial Planning Model Ingredients Most financial planning models have the following ingredients: 1. Economic Assumptions  2. Sales Forecast 
Background image of page 2
3. Pro Forma Statements  4. Asset Requirements  5. Financial Requirements  6. Plug Variable  The Simple Financial Planning Model The simplest financial planning model uses the following assumptions: All income statement and balance sheet accounts are directly tied to sales Current relationships are optimal (all items grow with sales) To use this model, follow the four-step process: 1. Forecast sales growth 2. Gross-up sales, costs, and assets by growth rate 3. Decide ‘plug’ value i. Dividends ii. Debt 4. Adjust the balance sheet values using the plug figure to make it balance Example: Minotaur ®  Brand Energy Drinks, LLC is expecting to have another great year.  The finance department has provided the following information: Their sales force expects that revenues will grow by 15% next year. All items costs are linked to sales and the current relationships are optimal.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Asset Intensity and Capital Structure constant Given the firm’s existing 2009 financials, construct Pro Forma financial statements for  the company for 2010.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}