Chap004s - Long-Term Financial Planning and Growth Chapter...

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Long-Term Financial Planning and Growth Chapter Four
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Financial Planning Model Ingredients Sales Forecast – many cash flows depend directly on the level of sales (often estimated using a growth rate in sales) Pro Forma Statements – setting up the plan as projected financial statements allows for consistency and ease of interpretation Asset Requirements – how much additional fixed assets will be required to meet sales projections Financial Requirements – how much financing will we need to pay for the required assets Plug Variable – management decision about what type of financing will be used (makes the balance sheet balance) Economic Assumptions – explicit assumptions about the coming economic environment
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Example: Historical Financial Statements Gourmet Coffee Inc. Balance Sheet December 31, 2006 Assts 1000 Debt 400 Eqty 600 Total 1000 Total 1000 Gourmet Coffee Inc. Income Statement For Year Ended December 31, 2006 Revenues 2000 Costs 1600 Net Income 400
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Example: Pro Forma Income Statement Initial Assumptions Revenues will grow at 15% (2000*1.15) All items are tied directly to sales and the current relationships are optimal Consequently, all other items will also grow at 15% Gourmet Coffee Inc.
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