Financial Planning And Forecasting Is

Financial Planning And Forecasting Is – Sales forecasting Assets required for sales support Forecasting of internally generated funds Forecasting of required external funds Decision-making on the impact of the fundraising plan on indicators

Cash and Sec. $ Accents. Pay. and Accruals $100 Accounts Payable Bonds Inventory Total CL $200 Total CA$L-T Debt 100 Common Stock 500 Net Equity, Retained Earnings Total Assets $1,000 Total Receivables $1,000

Financial Planning And Forecasting Is

Financial Planning And Forecasting Is

Sale $2000.00 less: Var. Costs (60%) 1,200.00 Fixed Costs EBIT $ Interest EBT $ Taxes (40%) Net Income $ Dividends (30%) $ 15.12 Add RE $ 35.28

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Margin of Profit 2.52% 4.00% ” ROE 7.20% 15.60% ” SSO Days Days ” Inv. sale 8.33x 11.00x ”F.A. trade 4.00x 5.00x ” T.A. trading 2.00x 2.50x ” Debt/Assets 30.00% 36.00% Good TIE 6.25x 9.40x Bad Current Ratio 2. .0% Cost % 0.0 0.0

5 main assumptions Operating at full capacity in 2000. Each asset type grows in proportion to sales. Accounts payable and accruals grow in proportion to sales. Profit rate of 2000 (2.52%) and payout (30%) are maintained. Sales are expected to increase by $500 million. (%DS = 25%)

1250 D Assets = (A*/S0) D Sales = 0.5 (500) =250. 1000 sales 2000 2500 A*/S0 = 1000/2000 = 0.5 = 1250/2500.

Assets should increase by $250 million. What is AFN based on the AFN equation? AFN = (A*/S0)DS – (L*/S0)DS – M(S1)(RR) = ($1000/$2000) ($500) – ($100/$2000) ($500) – ($2,500)(0 . 7) = $180.9 million.

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The payout percentage remains 30 percent (d = 30%; RR = 70%). No new ordinary shares will be issued. All required external funds will be raised as debt, 50% promissory notes and 50% L-T debt.

2000 Forecast Base 2001 Forecast Revenue $2, $2,500 Less: FC 1,500 FC EBIT $125 Interest EBT $109 Taxes (40%) Net Income $ $ Del. (30%) $15 $19 Add RE $35 $46

Forecast Base 2000 1st Pass Cash $ $ Acct. rec Inventory Total CA$625 Net FA Total Assets $1000 $1250 At full capacity, so all assets should increase in proportion to sales.

Financial Planning And Forecasting Is

Projection Base 2000 2001 AP/Savings $125 Bonds Payable Total CL $225 L-T Debt Regular Stk Income * Total Claims $1000 $1071 * From Income Statement.

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Required increase in assets = $250 Spontaneous increase in debt. = Increase in Retained Earnings $ = Total AFN $ = $179 NWC must be active to meet projected sales. Balance should be balanced. So we have to charge $179 externally.

Additional notes = 0.5 ($179) = $89.50 additional L-T debt = but this financing will increase interest expense which will reduce NI and retained earnings. We generally ignore funding reviews.

AFN 1st pass 2nd pass Cash $ $ Acct. rec Inventories Total CA$625 Net FA Total Assets $1,250 $1,250 Asset requirements remain unchanged.

AFN 1st Pass 2nd Pass AP/Savings $125 Bonds Total CL $315 L-T Debt Total Stk Ret. income Total Claims $1,069 $1,250

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The comparison method assumes a constant profit margin, a constant dividend payout and a constant capital structure. The accounting method is more flexible. More importantly, it allows different commodities to grow at different rates.

Profit margin 2.52% 2.62% 4.00% ” ROE 7.20% 8.77% 15.60% ” SSO (days) ” Inv. sale 8.33x 8.33x 11.00x ”F. A. trade 4.00x 4.00x 5.00x ” T.A. sales 2.00x 2.00x 2.50x “D/A ratio 30.00% 40.34% 36.00 % 2 “1x.9 .9 6 x “1x.9 . x 3.00x ” Payout ratio 30, 00% 30.00% 30.00% Good

Op. cap.2001 = NOWC + net FA = $625 – $125 + $625 = $1125. Opera. cap.2000 = $900. = $1,125 – $900 = $225. Net Inv. op. cap.

Financial Planning And Forecasting Is

FCF = NOPAT – Net Inv. op. cap. = EBIT (1 – T) – Net inv. op. cap. = $125(0.6) – $225 = $75 – $225 = -$150.

Improving Cash Flow Forecasting Requires Both Predictive And Prescriptive Analytics

With existing fixed assets, sales could be $2,667. Since sales are only projected to be $2,500, no new fixed assets are needed.

The expected increase in fixed assets was $125, AFN would decrease by $125. Since no new fixed assets are required, AFN decreases by $125 to $179 – $125 = $54.

22 Q. If sales increased to $3,000 instead of $2,500, what would F.A. requirement? A. Target Ratio = VA/Capacity Sales = 500/2, 667 = 18.75%. There are enough F.A. to sell up to $2,667, but need FA to sell another $333: DFA = (333) = $62.4.

1. Earnings would not change, but assets would be smaller, so earnings would be better. 2. Less new debt, therefore lower interest, therefore higher profits, EPS, ROE (if funding reviews are taken into account). 3. Debt ratio, THEY would improve.

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% of 2000 Capacity 100% % Industry BEP 10.00% 11.11% 20.00% Profit Margin 2.62% 2.62% 4.00% ROE 8.77% 8.77% 15.60% DSO (days ) Inv. sale 8.33x 8.33x 11.00x F.A. sale 4.00x 5.00x 5.00x T.A. trade 2.00x 2.22x 2.50x D/A ratio 40.34% 33.71% 36.00% TIE ratio 1x 0.0 .0 9x 9x .0 .8 .8 x

DSO is above the industry average and inventory turnover is below the industry average. Improvements here would reduce working capital, lower capital requirements and further improve profitability and other metrics.

2000 2500 1000/2000 = 0.5; 1100/2500 = reduction factor shows economies of scale. To go from S=0 to S=2000, funds of $1000 are required. The next $500 sale requires only $100 in assets.

Financial Planning And Forecasting Is

27 Assets 1,500 1,000 500 Sales 500 1,000 2,000 A/S changes if assets are non-recurring. In general there will be excess capacity, but in the end a small DS leads to a large DA.

Financial Analysis Planning Job Description

Get historical data for a good company, then use a regression line to see how much a given increase in sales is needed to increase assets.

29 Regression Example Forecast Constant Ratio Inventory for a Well-Managed Company Regression Line Year Sales Inv. 1998 $1,280 118 1999 1,600 138 2,000 2,000 162 2001E 2,500 E 192E Sales (000) 1.28 1.6 2.0 2.5 Constant ratio greater than 2 of S1 to 0 = 0 required stock value 2 0 .

Higher dividend payout ratio? Increase AFN: Less retained earnings. Higher profit margin? Reduce AFN: More profit, more retained earnings. Higher capital intensity ratio, A*/S0? Increase AFN: More funds are needed to determine the increase in sales. Pay suppliers in 60 days instead of 30 days? AFN reduction: Trade creditors provide more capital, i.e. L*/S0 increases.

Excess capacity: Existence reduces AFN. Asset Base Stocks: Leads to less than proportional asset growth. Economies of scale: Also leads to less than proportional growth in assets. Steady Means: Generates large periodic AFN requirements, periodic excess capacity.

What Is Financial Analysis And Forecasting

In order to operate this website, we record user data and share it with processors. To use this website, you must agree to our privacy policy, including our cookie policy. Financial planning and analysis is a financial strategy that predicts profits and losses. Along with monitoring our financial and investment activities.

This includes paying attention to budgeting and money management. The whole point is to achieve financial freedom and stability. Not only for companies, but also for individuals.

In addition, financial planning and analysis not only produces reports, forecasts and deviations, but also uses this data to provide advice on how to improve performance, reduce risk, etc.

Financial Planning And Forecasting Is

In this article, we discuss various aspects of financial planning and analysis to provide in-depth knowledge that will help you be financially confident.

Where Are Financial Planning, Budgeting, Forecasting, And Reporting Heading?

Financial planning is the process of calculating the necessary financial resources and determining the means to achieve financial goals.

In other words, financial planning and analysis is the path to financial policy making. As such, it requires organizational budgeting, purchasing, investment and asset management.

In addition to setting policies, it also includes reviewing past performance, tracking trends, and analyzing errors. As a result, it helps to take corrective measures and predict future financial position.

It not only brings clarity to life but also gives direction and meaning to your financial decision. We have listed the main advantages:

Chapter 17 Financial Planning And Forecasting

1. Gives direction to our goals and dreams: It helps us better understand our goals in terms of how they affect other aspects of our lives and finances.

2. Be prepared for emergencies: In addition, it helps to save money for emergencies (advisors recommend equal to our half a year’s salary). Therefore, it helps your financial well-being in the event of a financial emergency.

3. Enjoy a better standard of living: Savings from financial planning can come in handy during tough times.

Financial Planning And Forecasting Is

4. Family safety. The right personal financial protection, such as insurance, can give you and your loved ones peace of mind.

The Importance Of Financial Forecasting

Its main purpose is to help assess the fund requirements of a business or individual and determine the sources of funds. We have listed several important goals:

1. Ensuring availability of funds: helps both in generating funds and

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