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    Financial Planning

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    ssvitthal
    1. Financial planning is a process of analyzing a firm's financing and investment options, projecting the consequences of present decisions, deciding on alternatives, and measuring performance against goals. It involves forecasting financial statements, determining funding needs, and establishing controls. 2. A financial plan contains pro forma balance sheets, income statements, and cash flow statements, descriptions of planned capital expenditures and strategies, and explains funding needs. It has both long-term and short-term horizons. 3. Financial planning is necessary to avoid surprises, integrate decisions, evaluate alternatives, and ensure feasibility. It establishes guidelines and identifies differences between goals and current status to determine necessary actions.

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    Financial Planning

    Uploaded by

    ssvitthal
    57 views25 pages
    1. Financial planning is a process of analyzing a firm's financing and investment options, projecting the consequences of present decisions, deciding on alternatives, and measuring performance against goals. It involves forecasting financial statements, determining funding needs, and establishing controls. 2. A financial plan contains pro forma balance sheets, income statements, and cash flow statements, descriptions of planned capital expenditures and strategies, and explains funding needs. It has both long-term and short-term horizons. 3. Financial planning is necessary to avoid surprises, integrate decisions, evaluate alternatives, and ensure feasibility. It establishes guidelines and identifies differences between goals and current status to determine necessary actions.

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    1. Financial planning is a process of analyzing a firm's financing and investment options, projecting the consequences of present decisions, deciding on alternatives, and measuring performance against goals. It involves forecasting financial statements, determining funding needs, and establishing controls. 2. A financial plan contains pro forma balance sheets, income statements, and cash flow statements, descriptions of planned capital expenditures and strategies, and explains funding needs. It has both long-term and short-term horizons. 3. Financial planning is necessary to avoid surprises, integrate decisions, evaluate alternatives, and ensure feasibility. It establishes guidelines and identifies differences between goals and current status to determine necessary actions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    57 views25 pages

    Financial Planning

    Uploaded by

    ssvitthal
    1. Financial planning is a process of analyzing a firm's financing and investment options, projecting the consequences of present decisions, deciding on alternatives, and measuring performance against goals. It involves forecasting financial statements, determining funding needs, and establishing controls. 2. A financial plan contains pro forma balance sheets, income statements, and cash flow statements, descriptions of planned capital expenditures and strategies, and explains funding needs. It has both long-term and short-term horizons. 3. Financial planning is necessary to avoid surprises, integrate decisions, evaluate alternatives, and ensure feasibility. It establishes guidelines and identifies differences between goals and current status to determine necessary actions.

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    of 25

    FINANCIAL PLANNING

    A QUOTE
    • You have got to be careful if you don’t
    know where you are going, because
    you might not get there - Yogi Berra
    Of Mission , Goals etc.,
    • Mission Statement
    • Strategic Plan
    • Corporate Objectives
    • Corporate Strategies
    • Operating Plans
    • Financial Plan
    What is FINANCIAL PLANNING?
    A Process of :
    -analysing the financing and investment choices
    open to the firm
    -Projecting the future consequences of present
    decisions
    -deciding which alternatives to undertake
    -measuring performance against the goals set in
    the Financial plan
    What is……… (continued)

    Van Horne : FP involves analysing financial


    flows of a company .It includes forecasting
    the consequences of various investment,
    financing and dividend decisions and
    weighting the effects of various
    alternatives
    ………. continued
    Ross, Westerfield and Jaffe :
    FP establishes guidelines for change
    Guidelines include:
    1. identification of Fin. Goals

    2. Differences between goals and

    current financial status


    3. statement of actions needed
    Contents of a Financial Plan

    • Pro forma Balance sheet


    • Pro forma Income Statement
    • Pro forma Statement of Sources and Uses
    of Cash
    • Description of planned Capital expenditure
    • Description of why these amounts are
    needed and strategies to be used
    Time Horizon
    Long Term FP
    3 to 5 years, but typically 5 years
    Could vary across companies

    Short Term FP
    Next 12 months
    Why do we need FP ?

    1.Help FM to avoid surprises


    Help Fm to handle those surprises that
    can’t be avoided
    2. Integration Effect

    3. Evaluation of alternatives :INV. & FIN

    4. Feasibility
    ELEMENTS OF FP
    1. Sales Forecast
    2. Economic Assumptions
    3. Pro forma Statements
    4. Asset Requirements
    5. Financial Requirements
    6. “Plug”
    Steps in FP process
    1 Project the Financial Statements
    2 Determine the Funds Needed
    3 Forecast the Fund Availability
    4 Establish System of Controls
    5 “Feed Back Loop”- A Procedure to adjust
    the basic plan
    6 Performance Based Mgt. Compensation
    System
    Balance Sheet Model Helps
    Liabilities Assets
    SF FA
    LT Loan Funds CA
    CL & P -

    Sales Increase affects


    Therefore any asset side increase must be met through either
    a. equity increase , Or b.LT Debt increase , Or
    c. A combination of both “ PLUG”
    Forecasting Methods
    -Percentage of Sales Method
    -Simple linear regression
    -Curvilinear regression
    -Multiple regression
    -Other methods: Baumol, EOQ, Payments
    pattern approach, capital budgeting
    External Funds Needed
    • The FIVE factors
    1 Projected Sales Growth
    2 Initial FA utilisation or Excess
    capacity situation
    3 Capital Intensity
    4 Profit Margin
    5 Dividend Policy
    USES OF PROFORMA
    STATEMENTS
    - Assess : anticipated Performance Vs
    General targets
    - estimate the effect of proposed operating
    changes, ‘what if’ analyses
    - Forecast firm’s future financing needs
    - Estimate future FCF which determines the
    company’s overall value
    Uses………………………
    - used by existing and prospective lenders
    - enables preparation of Pro forma Cash flow
    statement
    - adjustments in planned operations, credit policy
    etc.,
    Weaknesses
    -Past vs. Future
    - Variables are forced to take ‘Desired’
    values
    Problems of Percent of Sales
    Method
    Assumption of Constant Ratios – does not
    work in three situations :

    -economies of scale

    -Lumpy assets

    -Cyclical or seasonal changes

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