Financial Planning

Executive summary

© 2023, Avvale
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Agenda
• Main financial documents
• Integrated Financial Process Plan – Overview
• Gross to Net Planning
• COGS Planning
• Logistics costs Planning
• Opex Planning
• Indirect Cost Planning
• Opening Balance Decrease Planning
• Working Capital Planning
• CAPEX Planning
• Medium–Long Term Loan Planning
• Financial income/expense and tax planning
• Cash Flow and Disclosure

Main financial documents
Profit and Loss
▪ It indicates how much profit or loss a company
generated over a period of time (a month, a
quarter, a year.
Cash Flow Statement
▪ It shows how much cash a company is generating
▪ It also tracks, in broad terms, where that cash
came from and what it is being used for.
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Balance Sheet
▪ It provides a snapshot of the company’s assets,
liabilities, and equity on a given day.
Disclosure
▪ It refers to the release of all information about a
company that may influence an investor's
decision. It reveals both positive and negative
news, data, and operational details that impact its
business.
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Main financial documents - Income Statement (1)

PnL Structure
• It shows a company’s revenue, expenses, and profit Total Gross Sales
or loss for a specific period of time—typically a On Invoice Discount
month, a quarter, or a year. NET INVOICE SALES
Off Invoice Discount
• It tells you whether the company is making a profit— NET SALES
that is, whether it has positive net income. Cost of Goods sold
GROSS MARGIN
• It begins with the company’s revenue during the
Logistic Cost
period it covers.
Sales and marketing expense
• It then lists all the various costs, including the cost of General and administrative expense
making the goods or delivering the services, Other operating Income/Expenses
overhead expenses, taxes, and so on, and subtracts EBITDA (Earnings before Interest, Taxes,
them from revenue. The bottom line—what’s left Depreciation and Amortization)
over—is the net income, or profit. Depreciation and Amortization
EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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Main financial documents - Income Statement (2)

PnL Structure In the Income Statement, three sections can be
Total Gross Sales identified based on the level of detail of the
On Invoice Discount planning.
NET INVOICE SALES
Off Invoice Discount
First section up to Gross margin: PnL Lines are
NET SALES planned at the maximum level of detail (SKU
Cost of Goods sold and Customer).
GROSS MARGIN
Logistic Cost
Sales and marketing expense
General and administrative expense Second section below Gross margin: PnL Lines
Other operating Income/Expenses are planned at a higher level of detail (SKU and
Customer are derived through allocations).
EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization)
Depreciation and Amortization
EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes) Third section below EBIT: PnL Lines are usually
Taxes planned at the Legal Entity level.
NET PROFIT

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Main financial documents – Balance Sheet

To acquire the
assets the company
can use its own
• The balance sheet summarizes a money, which is the
company’s financial position at a given money its owners
have invested in it
point in time, usually the last day of a plus the money the
fiscal year. A fiscal year is a one-year company itself has
period that companies and governments
use for financial reporting and
owners’ earned over time

budgeting. Fiscal Year can not equity

correspond with the calendar year.
• It shows what the company owns (its assets
assets), what it owes (its liabilities), and
the difference between them, called
owners’ equity or shareholders’ equity
liabilities
• A balance sheet is called that because it
always balances. That is, all the assets Assets are everything a Or it can use borrowed
must equal all the liabilities plus owners’ company owns. The money. In balance sheet
equity. category includes cash, terminology, its own money
land, buildings, vehicles, is owners’ equity, and
machinery, computers, borrowed funds are liabilities
and even intangible
assets such as patents
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Integrated Financial Process Plan - Overview

Profit and Loss

Gross to Net Logistics Costs Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning
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Gross to Net Planning

Profit and Loss

Gross to Net Logistics Costs Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation

Gross Revenue

Other Income and

Revenues

On/Off Invoice
Discount
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Gross to Net Planning - Gross Revenue (1)

Gross revenue is the total amount of sales derived from a PnL Structure
company's main or principal business and recognized for a Total Gross Sales
reporting period, typically either for a month, quarter, or year, On Invoice Discount
prior to any deductions. NET INVOICE SALES
Off Invoice Discount
NET SALES
An example of a planning process is shown below: Cost of Goods sold
GROSS MARGIN
A. Sales Target Planning
Logistic Cost
B. Sales Planning by dimension of analysis Sales and marketing expense
General and administrative expense
C. Check Sales Planning Other operating Income/Expenses
D. Fine Tuning Sales Planning EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization)
E. Revenues Approval Depreciation and Amortization
EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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Gross to Net Planning - Gross Revenue (2)

Product SKU Product SKU Description Volumes % Increase/Decrease Target

Sales
A Target PROD 1 Product 1 75.000,00 10% 82.500,00
Planning PROD 2 Product 2 42.250,00 5% 44.362,50
PROD 3 Product 3 50.000,00 20% 60.000,

Volumes Prices Revenues

Sales Customer Product SKU
Planning Customer Product SKU January February December January February December January February December
Description Description
B by CUST 1 Customer 1 PROD 1 Product 1 5.000,00 4.800,00 4.000,00 3,52 3,5 2,75 17.600,00 16.800,00 11.000,00
dimension CUST 2 Customer 2 PROD 1 Product 2 3.500,00 3.200,00 2.500,00 3,52 3,5 2,75 12.320,00 11.200,00 6.875,00
of analysis CUST 2 Customer 2 PROD 2 Product 2 3.500,00 3.500,00 4.000,00 7,4 7,4 7,4 25.900,00 25.900,00 29.600,00
CUST 3 Customer 3 PROD 3 Product 3 10.000,00 11.000,00 9.250,00 3,9 4 4 39.000,00 44.000,00 37.000,00
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Gross to Net Planning - Gross Revenue (3)

Once the revenue planning has been completed, a check will be done, for example through a report, of the
variances between the Target and what has been planned.

Check Product SKU Target Planned

Product SKU Variance Variance %
Description Volumes Volumes
C Sales
Planning PROD 1 Product 1 82.500,00 90.000,00 7.500,00 9%
PROD 2 Product 2 44.362,50 48.000,00 3.637,50 8%
PROD 3 Product 3 100.000,00 95.000,00 -5.000,00 -5%

Fine
Tuning
D
Sales
If the planned data are not correct, it will be necessary to modify the planned sales data.
Planning

Revenues
E If no other changes are required at the end of the planning, the Revenues are approved.
Approval
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Gross to Net Planning - Other Income and Revenues

Other Income and Revenues are those revenues deriving from PnL Structure
the sale of products/services that are not attributable to the Total Gross Sales
company's core business. On Invoice Discount
NET INVOICE SALES
The planning can be by volume or directly by value. Off Invoice Discount
NET SALES
Cost of Goods sold
GROSS MARGIN
January February
Logistic Cost
Sales and marketing expense
SKU Selling Volumes Unitary Price Other Revenue Selling Volumes Unitary Price Other Revenue General and administrative expense
Other operating Income/Expenses
PROD1 15.000,00 2 30.000,00 15.000,00 2 30.000,00 EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization)
PROD2 23.000,00 2,5 57.500,00 23.000,00 2,5 57.500,00 Depreciation and Amortization
PROD3 100.000,00 0,75 75.000,00 100.000,00 0,75 75.000,00 EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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Gross to Net Planning - On/Off Invoice Discount

After planning the gross revenues, the next step of the process is PnL Structure
the planning of discounts in order to determine Net Sales. Total Gross Sales
Discounts can be divided into two categories: On Invoice Discount
• On Invoice discount are values that is discounted directly on NET INVOICE SALES
Off Invoice Discount
invoices.
NET SALES
• Off Invoice discount are values discounted not directly on
Cost of Goods sold
invoices due to the achievement of a defined volumes or GROSS MARGIN
turnover objective. Logistic Cost
Sales and marketing expense
General and administrative expense
Other operating Income/Expenses
January February
EBITDA (Earnings before Interest, Taxes,
Sales Selling Unitary Gross Selling Unitary Gross Depreciation and Amortization)
SKU % Discount % Discount
Channel Volumes Discount Revenue Volumes Discount Revenue Depreciation and Amortization
CHAN1 PROD1 40.000,00 1,34 300.000,00 40.000,00 1,45 300.000,00 EBIT (Earnings before interest and taxes)
CHAN2 PROD2 55.000,00 2,64 540.000,00 55.000,00 2,24 540.000,00 Financial Income and Expenses
CHAN2 PROD3 123.500,00 110.000,00 1,50% 123.500,00 110.000,00 1,25% EBT (Earnings before taxes)
Taxes
NET PROFIT
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COGS Planning

Profit and Loss

Gross to Net Logistic Cost Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation
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COGS Planning
PnL Structure
Cost of goods sold (COGS) refers to the direct costs of
Total Gross Sales
producing the goods sold by a company. This amount includes
On Invoice Discount
the cost of the materials and labor directly used to create the NET INVOICE SALES
good. It excludes indirect expenses, such as distribution costs Off Invoice Discount
and sales force costs. NET SALES
It is the carrying value of goods sold during a particular period. Cost of Goods sold
GROSS MARGIN
Logistic Cost
Sales and marketing expense
Raw Materials Packaging Personnel General and administrative expense
Unitary Selling Unitary Selling Unitary Selling
Other operating Income/Expenses
SKU COGS COGS COGS
COGS Volumes COGS Volumes COGS Volumes EBITDA (Earnings before Interest, Taxes,
PROD1 3,14 100.000,00 314.000,00 0,61 100.000,00 61.435,00 0,09 100.000,00 9.177,00 Depreciation and Amortization)
PROD2 3,14 76.000,00 238.640,00 0,42 76.000,00 32.246,80 0,10 76.000,00 7.243,56 Depreciation and Amortization
PROD3 1,99 50.000,00 99.500,00 0,36 50.000,00 17.882,50 0,09 50.000,00 4.524,50
EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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Logistics Cost Planning

Profit and Loss

Gross to Net Logistics Costs Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation
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Logistics Cost Planning

PnL Structure
Logistics costs relate to the charges for various transportation
Total Gross Sales
methods, including train travel, trucks, air travel and ocean
On Invoice Discount
transport. NET INVOICE SALES
Additional logistics costs include fuel, warehousing space, Off Invoice Discount
packaging, security, materials handling, tariffs and duties. NET SALES
Cost of Goods sold
GROSS MARGIN
Logistic Cost
January February December
Sales and marketing expense
Unitary Unitary Unitary General and administrative expense
Selling Logistics Selling Logistics Selling Logistics
Customer SKU Logistics Logistics Logistics
Volumes Costs Volumes Costs Volumes Costs Other operating Income/Expenses
Costs Costs Costs

CUST1 PROD1 6,54 100.000,00 654.000,00 6,54 100.000,00 654.000,00 6,54 100.000,00 654.000,00
EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization)
CUST2 PROD2 1,14 76.000,00 86.640,00 1,14 76.000,00 86.640,00 1,42 76.000,00 107.920,00
Depreciation and Amortization
CUST2 PROD3 3,61 50.000,00 180.500,00 3,61 50.000,00 180.500,00 3,49 50.000,00 174.500,00
EBIT (Earnings before interest and taxes)
Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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OPEX Planning

Profit and Loss

Gross to Net Logistic Cost Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation

OPEX Planning

Personnel Costs
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OPEX Planning
An operating expense (OpEx) is an expense a business incurs PnL Structure
through its normal business operations. Operating expenses Total Gross Sales
include rent, equipment, marketing, payroll, insurance, etc. On Invoice Discount
NET INVOICE SALES
Those costs are planned with cost center detail. Off Invoice Discount
A cost center is a department or function within an organization NET SALES
that does not directly add to profit but still costs the organization Cost of Goods sold
GROSS MARGIN
money to operate.
Logistic Cost
Sales and marketing expense
General and administrative expense
Business Unit Cost Center Cost Nature Janaury February March November December
Other operating Income/Expenses
Advertising
CDC1 Advertising 10.000,00 10.000,00 10.000,00 10.000,00 10.000,00
EBITDA (Earnings before Interest, Taxes,
department Depreciation and Amortization)
Marketing Depreciation and Amortization
CDC2 Sponsorship 2.500,00 2.500,00 2.500,00 2.500,00 2.500,00
department EBIT (Earnings before interest and taxes)
Marketing
Financial Income and Expenses
CDC3 Promo 5.430,00 5.430,00 5.430,00 5.430,00 5.430,00
department EBT (Earnings before taxes)
Taxes
NET PROFIT
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OPEX Planning - Personnel Costs

Personnel costs can be planned directly by cost nature since PnL Structure
Total Gross Sales
each cost nature corresponds to a different financial flow. An
On Invoice Discount
example of cost nature related to personnel costs are: NET INVOICE SALES
• Salary Off Invoice Discount
• Social contribution NET SALES
• Provision for pension funds Cost of Goods sold
GROSS MARGIN
Logistic Cost
Sales and marketing expense
Cost Center Cost Nature January February October November December
General and administrative expense
Cost Center 1 Salary 115.000,00 115.000,00 115.000,00 115.000,00 115.000,00 Other operating Income/Expenses
EBITDA (Earnings before Interest, Taxes,
Social Depreciation and Amortization)
Cost Center 2 20.000,00 20.000,00 20.000,00 20.000,00 20.000,00
Contribution
Depreciation and Amortization
Provision for EBIT (Earnings before interest and taxes)
Cost Center 3 30.000,00 30.000,00 30.000,00 30.000,00 30.000,00
pension funds Financial Income and Expenses
EBT (Earnings before taxes)
Taxes
NET PROFIT
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Indirect Costs Allocation

Profit and Loss

Gross to Net Logistic Cost Indirect Cost

COGS Planning OPEX Planning
Planning Planning Allocation
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Indirect Costs Allocation

Once all indirect costs have been planned, a cost allocation will be run in order to allocating planned costs
on the dimensions of analysis (customer, BU, Sales Channel, etc.).

The cost allocation is composed of two steps:

• Allocation by dimension of analysis based on information provided in the allocation rule
• Allocation at Product level based on Net Invoiced Sales

Allocation
example
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Opening Balance Decrease Planning

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning
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Opening Balance Decrease Planning

The opening balance is the balance that is retrieved at the beginning of an accounting period from the end
of a previous accounting period.
Percentages of decrease are planning at Balance Sheet level. It is necessary to indicate the amount
related to the Opening which will be decreased in each month of the planning year.

% Decrease Decrease

Balance Sheet Account Opening Balance January February December January February December

Financial Receivables 550.000,00 20% 80% 110.000,00 440.000,00

Trade Payables 300.000,00 50% 50% 150.000,00 150.000,00

Trade Receivables 250.000,00 30% 40% 75.000,00 100.000,00

Other Receivables 100.000,00 25% 25.000,00

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Working Capital Planning

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning

Receivables and
Payables

Payables to
Personnel

Inventory
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Working Capital Planning - Receivables and

Payables
The mapping between income statement and balance sheet account is the most important starting point
for Balance Sheet planning because some BS Account are automatically derived from P&L values.

An example of Income Statement-Balance Sheet mapping is shown below:

Income Statement Account Balance Sheet Account

Gross Revenue Trade receivables

On Invoice Discount Trade receivables

Off Invoice Discount Payables to customer

Logistic Cost Trade Payables

General and administrative expense Trade Payables

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Working Capital Planning - Receivables and Payables

The decrease of receivables and payables are planned by defining two financial KPI:
• DSO «Days of Sales Outstanding» is a measure of the average number of days that it takes a company
to collect payment for a sale.
• DPO «Days of Payables Outstanding» is a measure of the average number of days that it takes a
company to pay its bills and invoices

An example of receivables and payables planning is shown below:

DSO/DPO
example
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Working Capital Planning - Payables to Personnel

The account relating to Personnel costs are detailed by cost nature in order to isolate the different
components that have different financial impact. For this reason, each cost nature will flow into a
different Balance Sheet account in order to manage and planning the different impact of those account.

Income Statement Account Balance Sheet Account

Salary Payables to Personnel

Contribution Payables towards social welfare institutions

Provision for pension funds Provision for pension and similar obligations
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Working Capital Planning - Inventory

Inventory is the term for the goods available for sale and raw materials used to produce goods available
for sale. It is classified as a current asset on a company’s balance sheet.
For the inventory, the increase and decrease flows are planned in order to determine the closing amount
of each inventory category.

Inventory Flow January February March October November December

Raw Material Inventory Increase 100.000,00 100.000,00 100.000,00 100.000,00 100.000,00 100.000,00

Raw Material Inventory Decrease -90.000,00 -90.000,00 -90.000,00 -90.000,00 -90.000,00 -90.000,00

Work in Progress and Semi-Finished

Increase 80.000,00 80.000,00 80.000,00 80.000,00 80.000,00 80.000,00
Product Inventory

Work in Progress and Semi-Finished

Decrease -75.000,00 -75.000,00 -75.000,00 -75.000,00 -75.000,00 -75.000,00
Product Inventory

Finished Product Inventory Increase 150.000,00 150.000,00 150.000,00 150.000,00 150.000,00 150.000,00

Finished Product Inventory Decrease -140.000,00 -140.000,00 -140.000,00 -140.000,00 -140.000,00 -140.000,00
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CAPEX Planning

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning
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CAPEX Planning
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical
assets such as property, plants, buildings, technology, or equipment.
Fixed assets can be classified in:
• Tangible Asset (Property, Plant and equipment, etc.)
• Intangible Asset (Development Cost, Trademarks, Software, etc.)
• Financial Asset (Equity investment, Financial receivables, etc.)
Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life
or life expectancy.

Depreciation
example
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Medium-Long Term Loan Planning

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning
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Medium-Long Term Loan Planning

The term loan refers to a type of credit vehicle in which a sum of money is lent to another party in
exchange for future repayment of the value or principal amount and interests.
Medium-term loans are defined as loans with a repayment period between two and five years, while long
term loan have a repayment period greater than 5 years.

Principal
Fiscal period Principal Interest Total Payment
reimbursement

January 100.000,00 Loan amortisation plan is planned by

February 5.000,00 2.500,00 7.500,00
distinguish the repayment of
principal amount and the repayment
March 5.000,00 2.500,00 7.500,00
of interests.
April 5.000,00 2.500,00 7.500,00

May 5.000,00 2.500,00 7.500,00

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Financial Income/Expense and Taxes Planning

Balance Sheet

Medium–Long Financial
Opening Balance Working Capital Cash Flow and
CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning

Financial Incomes
and Expenses
Planning

Taxes Planning
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Financial Income/Expense Planning

Interest income is money earned by a company for lending their funds, by putting them, for example,
into a deposit account in a bank.
Interest expense is the cost of borrowing money from financial institutions, banks, bond investors, or
other lenders.
Interest income Interest expense

Bank account January February December Current financial payables January February December

Opening Balance 100.000,00 150.000,00 200.000,00 Opening Balance 200.000,00 300.000,00 450.000,00

Closing Balance 150.000,00 130.000,00 250.000,00 Closing Balance 300.000,00 230.000,00 500.000,00

Average Balance 125.000,00 140.000,00 225.000,00 Average Balance 250.000,00 265.000,00 475.000,00

Average iterest rate 2% 2% 2% Average interest rate 2% 2% 2%

Interest income 2.500,00 2.800,00 4.500,00 Interst expense 5.000,00 5.300,00 9.500,00
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Taxes Planning
Taxes are calculated based on the Operating Income and the planned average tax rate. The monthly
value of taxes will flow to the tax line of the income statement.
If the Operating Income is negative or equal to zero, the tax calculation will not be performed.

January February March October November December

Earning before Taxes 500.000,00 600.000,00 550.000,00 550.000,00 550.000,00 550.000,00

Average Tax Rate 20,00% 20,00% 20,00% 20,00% 20,00% 20,00%

Taxes 100.000,00 120.000,00 110.000,00 110.000,00 110.000,00 110.000,00

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Cash Flow and Disclosure

Balance Sheet

9. Medium–Long 10. Financial

6. Opening Balance 7. Working Capital Cash Flow and
8. CAPEX Planning Term Loan income/expense
Decrease Planning Planning Disclosure
Planning and taxes planning

Cash Flow

Disclosure
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Cash Flow
Cash Flow Structure
A cash flow statement is a financial statement that provides Net Income
aggregate data regarding all cash inflows a company Add (deduct) items not affecting cash:
receives from its ongoing operations and external - Depreciation
- Accounts Receivable variation
investment sources. It also includes all cash outflows that - Accounts Payable variation
pay for business activities and investments during a given - Inventory variation
period. Cash Flow from Operations

Cash Flow is composed of three different sections that can Investment

help investors to understand the company as a whole: Disinvestment

• Cash Flows from Operations Activities Cash Flow from Investing Activities

• Cash Flows from Investing Activities

Financial Income and Expenses
• Cash Flows from Financing Activities Dividend
Cash Flow from Financing Activities

Net Increase (decrease) in cash

Cash at the beginning of period
Cash at the end of period
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Disclosure
Disclosure refers to the timely release of all information about a company that may influence an investor's
decision. It reveals both positive and negative news, data, and operational details that impact its
business.
It is a statement released by a company that identifies the financial strategies that are being used and
reveals things like costs and profits for a certain calendar period.

The concept is that all parties should have equal access to the same set of facts in the interest of fairness.

Examples of disclosure information are:

• Public contributions
• Employees information
• Commitment and Guarantees
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Introduction to Financial Planning - Questionnaire

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