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Financial Planning

Presented by
Angshuman
Rudra
Introduction to Financial
Planning
Wikipedia says-
Financial planning is the task of
determining how a business will afford
to achieve its strategic goals and
objectives.
The Financial Plan describes each of
the activities, resources, equipment
and materials that are needed to
achieve these objectives, as well as
the timeframes involved.
The Planning Tasks
• The Financial Planning activity involves the
following tasks;-
• Assess the business environment
• Confirm the business vision and objectives
• Identify the types of resources needed to
achieve these objectives
• Quantify the amount of resource (labor,
equipment, materials)
• Calculate the total cost of each type of
resource
• Summarize the costs to create a budget
• Identify any risks and issues with the budget
set
The Importance
• Performing Financial Planning is
critical to the success of any
organization.
• It provides the Business Plan with
rigor, by confirming that the
objectives set are achievable from a
financial point of view.
It also helps the CEO to set financial
targets for the organization, and
reward staff for meeting objectives
The Crux
Basically, the financial plan section of
the business plan consists of three
financial statements,
•the income statement
•the cash flow projection
•the balance sheet
and a brief explanation/analysis of
these three statements.
The Cash Outlay
business expenses as broken into two
categories;
•Start up expenses
•Operating expenses
Start up expenses may include:
•business registration fees
•business licensing and permits
•starting inventory
•rent deposits
•down payments on property
• down payments on equipment
•utility set up fees
The Cash Outlay……..contd.
Operating expenses may include:
• salaries
• rent or mortage payments
• telecommunications
• utlities
• raw materials
• storage
• distribution
• promotion
• loan payments
• office supplies
• maintenance
The Working Capital
Working capital, also known as net
working capital, is a financial metric
which represents operating
liquidity available to a business. Along
with fixed assets such as plant and
equipment, working capital is
considered a part of operating capital.
It is calculated as current assets
 minus current liabilities

The Elements of working capital are as


Current Assets
Current asset is an asset on
the balance sheet which is expected to
be sold or otherwise used up within
one year.
It usually includes
Cash
Bank balance
Short term investments
Trade debtors (Receivables)
Inventory
Current Liabilities
Current liabilities are
considered liabilities of the business
that are to be settled in cash within
the fiscal year.
It usually includes
Trade Creditors (Payables)
Bank overdraft
Short term borrowings
Provision for taxes
Provision for dividends
A Mini Case
Bhasmey Hydro Electric
Power Project
Sikkim
By-M/S Gati Infrastructure
&
Amrit Jal Private Investors
The Capital Expenditure
Capital Expenditure (INR Million)
Particulars Amount
Land 38
Civil Works 1,416
Electro-mechanical 723
Contingencies 163
Preliminary & Pre-operative Expenses 277
Interest During Construction 429
Financing Cost 90
Effective Capital Cost 3,136
Working Capital
O & M Expenses Working Capital
O & M Expenses (% of Cap Ex) 1.50% O & M Expenses (Months) 100%
Annual Increase in O & M Expenses 4.00%
Receivables (Months) 1
Spares (% of Historical Cost) 1%
Increase in Historical Cost 6%
Working Capital Margin 25%

(INR Million) Projected Working Capital


Year Ending 31st March 2012 2013 2014 2015 2016 2017
Year Counter 1 2 3 4 5 6
O & M Expenses 4 4 4 4 5 5
Maintenance Spares 31 33 35 37 40 42
Receivables 17 70 72 74 77 79
Total Working Capital 52 107 112 116 121 126
Working Capital Borrowings 39 81 84 87 91 94
The Income Statement
An Income Statement, also called a Profit
and Loss Statement (P&L), is a financial
statement for companies that indicates how
Revenue (money received from the sale of
products and services before expenses are
taken out) is transformed into net income
The purpose of the income statement is to
show managers and investors whether the
company made or lost money during the
period being reported.
Income statements help investors and
creditors to determine the past performance
of the enterprise, predict future performance,
Construction of Income
Statement
• Sales Revenue = Price (of product) X Quantity Sold

• Gross profit = sales revenue – cost of sales and other direct costs

• Operating profit = Gross profit – overheads and other indirect costs

• Pre-tax profit or Net profit = operating profit - one off items and
redundancy payments, staff restructuring – interest payable

• Profit after tax = Pre-tax profit – tax

• Retained or Net profit = Profit after tax – Dividends


(INR Million) Projected Profit and Loss Account

Year Ending 31st March 2009 2010 2011 2012 2013 2014 2015 2016
Year Counter 1 2 3 4 5
Revenues
Primary Energy 178 732 754 777 800
Secondary 27 110 113 116 120
CER Revenue 35 139 139 139 139
Total Revenue 239 980 1,006 1,032 1,059
Expenses
O & M Expenses 47 49 51 53 55
Operating Profit or EBDITA 192 932 955 979 1,003
Interest on Working Capital 5 10 10 10 11
Interest on Term Loan 68 262 240 217 194
PBDT 120 660 705 751 798
Depreciation - Companies Act 176 176 176 176 176
PBT (Companies Act) -56 484 529 576 622
Effective Tax 55 60 65 71
PAT -56 429 469 510 552
EffectiveTax (%) 11% 11% 11% 11%
The Balance Sheet
In financial accounting, a balance
sheet or statement of financial
position is a summary of a person's or
organization's balances.
Assets, liabilities and ownership equity
are listed as of a specific date, such as
the end of its financial year.
A balance sheet is often described as a
snapshot of a company's financial
condition.
(INR Million) Projected Balance Sheet
Year Ending 31st March 2009 2010 2011 2012 2013 2014 2015 2016
Year Counter 1 2 3 4 5
Liabilities
Equity 157 549 549 784 784 784 784 784
Reserves -56 373 842 1,353 1,904
Net Worth 157 549 549 728 1,157 1,626 2,137 2,689
Debt 706 1,647 2,352 2,156 1,960 1,764 1,568
Working Capital Loan 39 81 84 87 91
Total Liabilities 157 1,255 2,196 3,119 3,394 3,671 3,988 4,347
Assets
Land 55 55 55 55 55
Civil Works 1,972 1,904 1,836 1,768 1,699
Electro-mechanical 934 826 719 611 503
Total 157 1,255 2,196 2,961 2,785 2,609 2,433 2,257
Cash Balance 107 502 950 1,439 1,969
Current Assets 52 107 112 116 121
Total Assets 157 1,255 2,196 3,119 3,394 3,671 3,988 4,347
The Cash Flow
Statement
Cash flow statement or statement of
cash flows is a financial statement that
shows a company's flow of cash.
The money coming into the business is
called cash inflow, and money going out
from the business is called cash outflow.
The statement shows how changes
in balance sheet and income
accounts affect cash and cash
equivalents, and breaks the analysis
down to
Operating
Investing
(INR Million) Projected Cash Flow Statement

Year Ending 31st March 2009 2010 2011 2012 2013 2014 2015 2016
Year Counter 1 2 3 4 5
In-flow
Cash From Operations (PAT + Depreciation ) 120 605 645 686 728
Equity 157 392 235
Debt 706 941 706
Increase in Working Capital Borrowings 39 41 3 3 3
Total Inflow 157 1,098 941 1,100 646 648 690 731
Out Flow
Assets (Equity+Debt) 157 1,098 941 941
Repayment of Debt 196 196 196 196
Increase in Current Assets or Total Working
52 55 4 4 5
Capial
Opening Balance 107 502 950 1,439
Flow for the Year 107 395 448 489 530
Closing Balance 107 502 950 1,439 1,969
The Generalisation

The Financial plan section is


the section of Business Plan
that determines whether or
not your business idea is
viable, and is a key
component in determining
whether or not your business
plan is going to be able to
attract any investment in
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