You are on page 1of 13

Financial Planning and

Forecasting Financial Statements

Presented By Bright Minds:
Dalia Mohamed
Heba-tullah Azzam
Mohamed Abdel Tawab
Rasha Khedr

With Dr. Samia Kamel

Cash budget. importance and types. . Pro forma balance sheet. Pro forma income statement.CHAPTER 14 CONTENTS Financial planning definition.

DEFINITION: FINANCIAL PLANNING •The task of determining how the organization will afford to achieve its strategic goals. BENEFITS: •Developing a financial plan is critical to the success of any organization. equipment. •It validates the business plan. and materials needed to achieve an organization's objectives as well as the timeframe. by confirming that the objectives set are achievable from a financial point of view. •Describes activities. . resources. •Created immediately after the vision and objectives have been determined.

.Financial Planning Long-term. or operating plans and budgets Profit planning (preparing the pro forma statements). or strategic financial plans Guides Cash planning (preparing the cash budget) Short-term.

The more seasonal and uncertain a firm’s cash flows. the greater the number of intervals. divided into smaller time intervals. • Covers •The a 1-year period. . number of intervals depend on the nature of the business.CASH PLANNING: CASH BUDGET •Statement of the firm’s planned inflows and outflows of cash that is used to estimate its short-term cash requirements.


(2) The sales forecast for the coming year. income statements and balance sheets. Two inputs are required for preparing pro forma statements: (1) Financial statements for the preceding year.PROFIT PLANNING: PRO FORMA STATEMENTS Pro forma statements: Projected. . or forecast.

950 Dollar sales Model X ($25/unit) Model Y ($50/unit) Total $ 37.500 97. Sales Forecast for Vectra Manufacturing 2016 Unit sales Model X Model Y 1. •It forecasts sales and then expresses the various income statement items as percentages of projected sales. •The percentages used are likely to be the percentages of sales for those items in the previous year.500 $135.500 1.VECTRA MANUFACTURING PRO FORMA INCOME STATEMENT •A simple method for developing a pro forma income statement is the percent-of-sales method.000 .

500 38.000 Sales Less: Cost of goods sold Labor Material A Material B Overhead Total cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense $ 28. for Vectra Manufacturing for the year Ended December 31. 2016 Sales revenue $135.10) 13.000 Less: Operating expenses (0.000 Gross profits $ 27.80) 108.000) Net profits after taxes Less: Common stock dividends 1.500 Less: Interest expense (0.350 Net profits before taxes 12. Using the Percent-of-Sales method.15 * $12.500 Operating profits $ 13.000 $ 10.350 $ 7.150 Less: Taxes (0.000 Less: Cost of goods sold (0.150) 1.823 .000 A Pro Forma Income Statement.000 5.000 1.000 10.500 8. 2015 $100.000 $ 80.01) 1.000 Less: Taxes (0.650 4.Vectra Manufacturing’s Income Statement for the Year Ended December 31.000 $ 20.15 * $9.000 Net profits before taxes 9.

 A better and more popular approach is the judgmental approach as the financial Manager puts his judgments and assumptions. . under which the firm estimates the values of certain balance sheet accounts and uses its external financing as a balancing.” figure. or “plug.PREPARING THE PRO FORMA BALANCE SHEET  A number of simplified approaches are available for preparing the pro forma balance sheet.  One involves estimating all balance sheet accounts as a strict percentage of sales.

000 is desired.  A new machine costing $20. ..875 (1/8 * $135.000.  Accounts receivable on average represent about 45 days of sales (about 1/8 of a year).  Notes payable will remain unchanged from their current level.sets of $63.TO APPLY THE JUDGMENTAL APPROACH TO PREPARE VECTRA MANUFACTURING’S 2016 PRO FORMA BALANCE SHEET. accounts receivable should average $16.  The ending inventory should remain at a level of about $ will be purchased with total depreciation for the year is $8.000). BELOW ASSUMPTIONS ARE MADE:  Minimum cash balance of $6.000 acquisition to the existing net fixed assets and subtracting the depreciation of $8.  Marketable securities will remain unchanged from their current level of $4.  Accounts payable should equal one-fifth purchases which is assumed to be 30 percent of annual sales which is $8100  Taxes payable will equal one-fourth of the current year’s tax liability. and no change in other current liabilities is expected. Because Vectra’s annual sales are projected to be $135. Adding the $20.000.000 yields net fixed as.000.