Ch12 Show

Ch12 Show - CHAPTER 12 Financial Planning and Forecasting...

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1 CHAPTER 12 Financial Planning and  Forecasting  Financial  Statements
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2 Topics in Chapter n Financial planning n Additional funds needed (AFN) equation n Forecasted financial statements n Sales forecasts n Operating input data n Financial policy issues n Changing ratios
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Value =                        +                         +  ··· + FCF1 FCF2 FCF∞ (1 + WACC)1 (1 + WACC)∞ (1 + WACC)2 Free cash  flow (FCF) Weighted  average cost of capital (WACC ) Projected income statement s Projecte d balance sheets Intrinsic Value: Financial Forecasting Projected additional financing needed  (AFN) Forecasting : Operating assumptions Forecasting: Financial  policy  assumptions
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4 Elements of Strategic Plans n Mission statement n Corporate scope n Statement of corporate objectives n Corporate strategies n Operating plan n Financial plan
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5 Financial Planning Process n Forecast financial statements under  alternative operating plans. n Determine amount of capital needed to  support the plan. n Forecast the funds that will be  generated internally and identify  sources from which required external  capital can be raised.
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6 Financial Planning Process  (Continued) n Establish a performance-based  management compensation system that  rewards employees for creating  shareholder wealth. n Management must monitor operations  after implementing the plan to spot any  deviations and then take corrective  actions.
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Balance Sheet, Hatfield, 12/31/10 7
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8 Income Statement, Hatfield, 2010
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Industry Using DuPont Equation ROE= NI/S × S/TA × TA/E NI/S = $24/$2,000 = 1.2% S/TA = $2,000/$1,200 = 1.67 TA/E = $1,200/$500 = 2.4 ROEHatfield= 1.2% × 1.67 × 2.4 = 4.8%. ROEIndustry = 2.74% × 2.0 × 2.13 =  11.6%. 9
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Ch12 Show - CHAPTER 12 Financial Planning and Forecasting...

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