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chapter 17 - Chapter 17 Long-term financial planning...

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COPYRIGHT©ZHULI 1 Chapter 17 Long-term financial planning
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COPYRIGHT©ZHULI 2 Objectives 1. Describe the contents and uses of a financial plan. 2. Construct a simple financial planning model. 3. Estimate the effect of growth on the need for external financing.
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COPYRIGHT©ZHULI 3 Content What is financial planning? Financial planning models Planners beware External financing and growth
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COPYRIGHT©ZHULI 4 Most firms take financial planning seriously and devote considerable resources to it. The tangible product of the planning process is a financial plan describing the firm’s financial strategy and projecting its future consequences by means of pro forma balance sheets, income statements, and statements of sources and uses of funds.
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COPYRIGHT©ZHULI 5 The plan establishes financial goals and is a benchmark for evaluating subsequent performance. Usually it also describes why that strategy was chosen and how the plan’s financial goals are to be achieved. Planning is more than forecasting, because forecasting deals with the most likely outcome. Planners also have to think about events that may occur even though they are unlikely.
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COPYRIGHT©ZHULI 6 In long-range, or strategic, planning, the planning horizon is usually 5 years or more. This kind of planning deals with aggregate decisions. The plan is the end result. The process that produces the plan is valuable in its own right. Planning forces the financial manager to consider the combined effects of all the firm’s investment and financing decisions. This is important because these decisions interact and should not be made independently.
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