FM_ch4_notes - Chapter 4: Financial Planning and...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 4: Financial Planning and Forecasting Summary Financial Planning Process There are three key aspects to the financial planning process. o Cash planning (forecasting the need for cash) Involves prep of cash budget o Forecasting future profitability Develop a pro forma or projected income statement o Forecasting the need for financing Through use of forecasted income statement & projecting firm’s balance sheet for the forecast period These are prepared as “Pro Forma” income statements and balance sheets. Long-Term Strategic Plans Long-term financial plans are the planned financial actions and the anticipated financial impact of those actions over periods ranging from 2 to 10 years. Such planning projections may be carried out as a regular function of the firm’s operations, or in conjunction with corporate strategic planning efforts. Short-Term Operating Plans Short-term financial plans are those planned financial actions and the anticipated impact of those actions over periods ranging from one to two years. Because of their relevance to immediate operations, such plans form a regular and needed function to the firm. Cash Planning: Cash Budget The Cash Budget or cash forecast is a statement of the firm’s planned inflows and outflows of cash that is used to estimate its short-term cash requirements. Sales Forecast The prediction of the firm’s sales over a given period, based on external and internal data, and used as the key input to the financial planning process. o External forecasts involve the use of general economic data such as GDP, interest rates, disposable personal income, and other similar data. o Internal forecasts utilize data internal to the firm, such as sales force surveys, order buildups, and other sales channel information. Preparing Cash Budgets Two basic categories of data are required to develop the Cash Budget: o Cash Receipts, including cash sales, collections of accounts receivable, and other cash receipts. Refer to Table 4.2, page 180 o Cash Disbursements, including cash dividends, principal repayment, 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Chapter 4: Financial Planning and Forecasting purchases, payment of accounts payable, wages, salaries, and taxes. Given the Cash Receipts and Cash Disbursements the Cash Budget produces:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

FM_ch4_notes - Chapter 4: Financial Planning and...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online