L_8_ - Chapter Outline Lecture 8 Long-Term Financial...

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Chapter Outline Lecture 8 Long-Term Financial Planning and Growth Financial Planning External Financing and Growth
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Financial Planning Model Ingredients Sales Forecast Projected Future Sales; Drives the model Pro Forma Statements The output summarizing different projections Asset Requirements Investment needed to support sales growth Financial Requirements and Constraints Projected Financial Arrangements The External Financing Needed Designated source(s) of external financing Raising Debt or Equity; Choosing dividend policies
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The Percentage of Sales Approach: General Formulas Given a sales forecast and an estimated profit margin, what addition to retained earnings can be expected? Let: S = previous period’s sales g = projected increase in sales PM = profit margin (Net Income/ Sales) b = earnings retention (“plowback”) ratio The expected addition to retained earnings is: This represents the level of internal financing the firm is expected to generate over the coming period.
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The Percentage of Sales Approach: General Formulas (concluded) What level of asset investment is needed to support
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This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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L_8_ - Chapter Outline Lecture 8 Long-Term Financial...

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