Ch16 - 1 Power Point Presentation designed by Dr. Sylvia C....

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Unformatted text preview: 1 Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU 2 What are the basic policy elements of financial planning? Investment in new assets determined by capital Investment in new assets determined by capital budgeting decisions budgeting decisions Degree of financial leverage determined by Degree of financial leverage determined by capital structure decisions capital structure decisions Cash paid to shareholders dividend policy Cash paid to shareholders dividend policy decisions decisions Liquidity requirements determined by net Liquidity requirements determined by net working capital decisions working capital decisions 3 Financial Forecasting and Planning (Model Ingredients) Sales Forecast many cash flows depend directly on the Sales Forecast many cash flows depend directly on the level of sales (often estimated using a growth rate in level of sales (often estimated using a growth rate in sales) sales) Pro Forma Statements setting up the plan as projected Pro Forma Statements setting up the plan as projected financial statements allows for consistency and ease of financial statements allows for consistency and ease of interpretation interpretation Asset Requirements how much additional fixed assets Asset Requirements how much additional fixed assets will be required to meet sales projections will be required to meet sales projections Financial Requirements how much financing will we need Financial Requirements how much financing will we need to pay for the required assets to pay for the required assets Plug Variable management decision about what type of Plug Variable management decision about what type of financing will be used (makes the balance sheet balance) financing will be used (makes the balance sheet balance) Economic Assumptions explicit assumptions about the Economic Assumptions explicit assumptions about the coming economic environment coming economic environment 4 Financial Forecasting and Planning: Starting Point Sales Forecast Sales Forecast Forecast future sales based on past sales growth 95 96 97 98 99 00 01 02 03 04 Time Sales Also include the effects of any events which are expected to impact future sales (new products or economic conditions) New Product Introduced 5 Financial Forecasting and Planning Impact of Sales Growth Impact of Sales Growth Sales Growth imposes costs on the firm. 2008 2008 2009 2009 Will require additional resources Current Assets: Inventory, A/R, Cash Fixed Assets: Plant and Equipment 6 Percentage of Sales Approach Determine Sales Growth Determine Sales Growth Step 1 Determine Capacity Determine Capacity Step 2 Productive Capacity Productive Capacity Need to determine how sales growth will affect the Need to determine how sales growth will affect the firms need for fixed assets....
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Ch16 - 1 Power Point Presentation designed by Dr. Sylvia C....

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