L_7_ - Chapter Outline Lecture 7 Long-Term Financial...

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Chapter Outline Lecture 7 Long-Term Financial Planning and Growth Financial Ratios (continue) Financial Planning: The Percentage of Sales Approach
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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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Example: A Simple Financial Planning Model Recent Financial Statements Income statement Balance sheet Sales $100 Assets $50 Debt $20 Costs 90 Equity 30 Net Income $ 10 Total $50 Total $50 Assume that: 1. sales are projected to rise by 25% 2. the debt/equity ratio stays at 2/3 3. costs and assets grow at the same rate as sales 4. the firm doesn’t issue new equity but raise debt Q: What’s the Dividends to be paid out?
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Example: A Simple Financial Planning Model (concluded) Pro Forma Financial Statements Income statement Sales $ Costs Net Q:What’s the Dividends to be paid out?
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