Financial Planning

Budgeting, Forecasting
 Budgeting
Budget serves as a barometer to which the
results of the daily operations of the company
are matched, coordinated, evaluated and
controlled.
Management compares the actual figures of
company operations vis-à-vis the budgeted
figures and see if there are favorable and
unfavorable differences or variances.
 Budgeting
The firm’s budget is prepared, usually, for one
year. This however is delineated with separate
budgets presented on monthly or quarterly
basis.
 Reasons for budgeting
1. Planning – The budgeted income statement
helps the management in planning the way
to achieve the desired profit found in the
budgeted income statement.
2. Coordination – Budgeting tends to
synchronize the firm’s operations because
the budget serves as a guide as to what the
company should achieve.
 Reasons for budgeting
3. Control – Budgeting provides the barometer
or the yardstick against which the firm can
measure and compare their actual results of
operations.
 Budget Manuals
Content:
• Objectives
• Definition of authority
• Responsibilities and duties of persons involved in
preparing the budget
• Procedures of budgetary control
• Time schedule
• Forms of schedule
• Procedures in obtaining approval
• Form of report
• Advantages of budgetary control
 Master Budget
Master Budget – a one company-wide budget
Master budget is the sum total of all the
divisional budgets that is prepared by all the
divisions. Further, it also includes the financial
planning, cash-flow forecast and budgeted
profit and loss account and balance sheet of
the organization.
 Components
1. Operations Budget/profit Plan – composed of
detailed presentation of revenues, expenses
and net profit. This takes the form of the pro-
forma or budgeted income statement
2. Financial resources Budget – made up of cash
budget, pro-forma or budgeted SFP
3. Capital Expenditures Budget – involves plans
on acquisition and disposal of property, plant
and equipment
 Components
4. Budgeted Financial ratios – The ratios are
taken from the pro-forma or budgeted
financial statements prepared. The figures are
estimated and budgeted.
 Construction of the Pro-forma
Statements
1. Targeted Sales are estimated
2. And 3. Individual Budgets/Plans
4. Pro-forma Income Statements
5. Pro-forma Cash Budget
6. From pro-forma IS and Cash budget, you can
now create pro-forma SFP