Ch3_vSep16 - Chapter 3 Outline 3.1 What is Financial...

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Ch.3 Chapter 3 Outline 3.1 What is Financial Planning? 3.2 A Financial Planning Model: The Ingredients 3.3 The Percentage Sales Method 3.4 What Determines Growth? 3.5 Summary and Conclusions 1 Wednesday, September 16, 2009
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Ch.3 3.1 What is Financial Planning? Chapter 2 was about the past and present position of the company Chapter 3 addresses the future of the company Financial planning formulates the method by which financial goals in the future are to be achieved. How to do the financial planning: Scenario analysis: prepare future plans under three different scenarios - A worst case, a normal case, and a best case 2 Wednesday, September 16, 2009
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Ch.3 What Will the Planning Process Accomplish? Interactions The plan must make explicit the linkages between investment proposals and the firm’s financing choices. Options The plan provides an opportunity for the firm to weigh its various options. Feasibility The different plans must fit into the overall corporate objective of maximizing shareholder wealth. Avoiding Surprises Nobody plans to fail, but many fail to plan. 3 Wednesday, September 16, 2009
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Ch.3 3.2 A Financial Planning Model: The Ingredients Sales forecast Pro forma statements Asset requirements Financial requirements Plug Economic assumptions 4 Wednesday, September 16, 2009
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Ch.3 Sales Forecast All financial plans require a sales forecast. Perfect foreknowledge is impossible since sales depend on the uncertain future state of the economy. Consulting firms that specialize in macroeconomic and industry projects can help in estimating sales. Example: the events of September 11, 2001 resulted in lower sales forecasts for many firms, especially in the airlines and travel industry. 5 Wednesday, September 16, 2009
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Ch.3 Pro Forma Statements The financial plan will have a forecast balance sheet, a forecast income statement, and a forecast sources-and- uses-of-cash statement. These are called pro forma statements or pro formas. 6 Wednesday, September 16, 2009
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Ch.3 Asset Requirements The financial plan will describe projected capital spending. In addition it will discuss the proposed uses of net working capital. 7 Wednesday, September 16, 2009
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Ch.3 Financial Requirements The plan will include a section on financing arrangements. Dividend policy and capital structure policy should be
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This note was uploaded on 04/24/2010 for the course ACTSC 371 taught by Professor Wood during the Spring '08 term at Waterloo.

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Ch3_vSep16 - Chapter 3 Outline 3.1 What is Financial...

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