FINANCIAL

FORECASTING
FOR STRATEGIC
GROWTH
 CONTENTS
⋆ Financial Planning
⋆ Benefits that can Derived from Financial Planning
⋆ Financial Planning Models
⋆ Financial Planning Process

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FINANCIAL
PLANNING
“Financial planning and discipline is key to
one's financial freedom.”
― Kishorkumar Balpalli

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 FINANCIAL PLANNING

⋆ Formulates the way in which financial goals

are to be achieved.
⋆ It focuses on the big picture, which means
that it is concerned with the major elements
of a firm’s financial and investment policies.

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 Benefits that can be
2 Derived from Financial
Planning

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SIGNIFICANT BENEFITS DERIVED FROM FINANCIAL PLANNING

⋆ Provides a rational way of planning options or

alternatives.
⋆ Interactions or Linkages between investment proposals
are carefully examined.
⋆ Possible problems related to the proposal projects are
identified actions to address them are studied.
⋆ Feasibility and internal consistency are ensured.
⋆ Managers are forced to think about goals and establish
priorities.

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FINANCIAL 3
PLANNING
MODELS

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 FINANCIAL PLANNING MODELS

ECONOMIC ENVIRONMENT SALES FORECAST PRO FORMA STATEMENTS

ASSUMPTIONS

ASSET REQUIREMENTS FINANCIAL REQUIREMENTS ADDITIONAL FUNDS NEEDED

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ECONOMIC ENVIRONMENT ASSUMPTIONS

 The plan will have explicitly the economic environment in

which the firm expects to reside over the life of the plan.

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SALES FORECAST

 An externally supplied sales forecast considered the

“driver” shall be the “heart” of all financial plans.
 Planning will focus on projected futures sales and the
assets and financing needed to support those sales.

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PRO FORMA STATEMENTS

 These are called pro forma or projected statements which

will summarize the different events projected for the
future.
 A financial plan will have a forecast statement of financial
position, income statement, statement of cash flows and
statement of stockholder’s equity.

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ASSETS REQUIREMENTS

 The financial plan will describe projected capital

spending.

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FINANCIAL REQUIREMENTS

 The financial plan include a section about necessary

financing arrangements.

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ADDITIONAL FUNDS NEEDED

 Bringing the statement of financial position balance after

the firm has a sales forecast and an estimate of the
required spending on assets.

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FINANCIAL
PLANNING PROCESS
 THE PRJECTED FINANCIAL STATEMENT METHOD

Forecast the Income Statement

Forecast the Statement of Financial Position
 Establish a sales projection.
 Project the assets that will be needed to
 Prepare production schedule and support projected sales.
project the corresponding production
 Project funds that will be spontaneously
costs; direct materials, direct labor
generated through (accounts payable and
and overhead.
accruals) and by retained earnings.
 Estimate selling and administrative
 Project liability and stockholder’s equity
expenses.
accounts that will not rise spontaneously with
 Consider financial expenses, if any. sales but may change due to financing
 Determine the net profit. decisions that will be made later.
 Determine if additional funds will be needed .

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 THE PRJECTED FINANCIAL STATEMENT METHOD

Raising the additional funds needed

Consider financing feedbacks
 Target capital structure
 Consider the additional funds from common
 Effect short – term borrowing on its stocks and additional interest expense.
current ratio;
 Conditions in the debt and equity
markets;
 Restrictions imposed by existing debt
agreements.

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The firm is expecting a 20% increase in sales next year, and management is
concerned abut the company’s external funds. The increase in sales is
expected to carried out without any expansion of fixed assets, but rather
through more efficient asset utilization in the existing store. Among liabilities,
only current liabilities vary directly with sales.

Using the percent-of-sales method, determine whether the

company has external financing needs or a surplus of funds.

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Sales 2,000,000 100% 2,400,000
Cost of sales 1,200,000 60% 1,440,000
Gross Profit 800,000 40% 960,000
Operating expenses 380,000 19% 456,000
EBIT 420,000 504,000
Interest expense 70,000 70,000
EBT 350,000 434,000
Taxes (35%) 122,500 151,900
Earning after taxes 227,500 282,100

Dividends 136,500 101,600

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Cash 50,000
Accounts receivable 400,000
Inventory 750,000
Total current assets 1,200,000
Fixed Assets 800,000
Total Assets 2,000,000

Accounts payable 250,000

Accrued wages 10,000
Accrued taxes 20,000
Total current liabilities 280,000
Notes payable 70,000
Long –term debt 150,000
Ordinary shares 1,200,000
Retained earnings 300,000
Total liabilities and equity 2,000,000

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 MERRY CHRISTMAS
AND A HAPPY NEW YEAR!
Greetings from: Mam Mej

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