Chapter 11. Financial Planning and. forecasting Chapter 11

Transcription

1 Chapter 11 Financial planning and frecasting Chapter 11 Financial Planning and Frecasting

2 Learning utcmes Discuss the purpse f a financial plan detail Define financial plan and financial plicy Discuss the purpse f a financial plicy in detail Name and discuss the different cmpnents f a financial plicy and their influences

3 Learning utcmes (cnt.) Determine a break-even pint Name and discuss the varius types f finance Discuss the imprtance f cash flw in a small business venture Define frecasting prcess and discuss this cncept Develp the three financial statements used in the frecasting prcess

4 Planning Planning: thinking what and hw a required utcme, result r bjective shuld be btained. Planning invlves: Identificatin and frmulatin f bjectives Gathering all necessary data Analysing the data Drawing up the plan Implementatin f the plan

5 Financial plicy Plicy: sets ut guidelines r principles accrding t which an enterprise must act in btaining its bjectives. Cmpnents f financial plicy: Frecasting and planning Majr investment and financing decisins Crdinatin and cntrl: 1. Setting standards 2. Cmpare actual results with standards 3. Evaluatin f deviatins 4. Take crrective actin when necessary Risk management

6 Financial plan Is cncerned with: Investigating the chice between tw r mre alternatives Fr reaching a specific bjective Determining hw each specific gal is t be achieved Invlves the effective acquisitin, use and cntrl f financial resurces

7 Purpse f financial plan Prvides specific utcmes f future activities in mnetary terms Prvides the necessary figures t back the varius chices made

8 Purpse f financial plan (cnt.) Factrs t cnsider when develping a financial plan: The industry and cmpetitin The market Current ecnmic and plitical circumstances Technlgy Scial envirnment Eclgical envirnment

9 Break-even pint Quantity = Fixed csts per unit (Price Variable csts)

10 Limitatins f break-even pint analysis Nt easy t classify all csts as either fixed r variable Elements f fixed and variable csts are nt always cnstant Excludes qualitative factrs Instability f mnetary value nt taken int accunt

11 Financial frecasting Financial-planning prcess steps: Prject financial statements Determine funds t supprt five-year plan Frecast funds available fr next five years Establish and maintain system f cntrls Develp prcedures fr adjusting basic plans

12 Reasns fr frecasting Frecasting enhances quality f planning Cntrl functin is made easier Enhances integratin and crdinatin f varius pinins and needs Actual perfrmance f varius departments and persnnel can be measured mre easily

13 The frecasting prcess Infrmatin needed: Operating budget Prjected cash budget Prjected statement f prfit r lss and ther cmprehensive incme Prjected statement f financial psitins

14 Pr-frma financial statements The pr-frma statement f cash flws A statement f an entity's planned cash inflws (mney physically cming int the business) Cash utflws (mney physically ging ut f the business) It is used t estimate an entity s shrt-term cash requirements.

15 The pr-frma statement f prfit r lss and ther cmprehensive incme A statement used t plan whether an entity will be making a prfit r a lss During a given financial year Taking int accunt all the incme that is t be received All the expenses that has t be paid

16 The pr-frma statement f prfit r lss and ther cmprehensive incme (cnt.) T prepare: Cmpile sales r fee-received prjectin Cmpile perating schedule Determine any ther expenses Calculate prjected prfit

17 The pr frma statement f financial psitin A planned financial statement n a certain date t determine the financial psitin f the entity with respect t its capital generated and the applicatin theref