Financial Forecasting

For Strategic Growth

 Long Range Planning
A means of systematically thinking about the future and anticipating
possible problems before they occur.

 Planning
is said to be a process that at best helps the firm avoid stumbling
into the future
What is Financial Planning

 Theway in which financial goals are to be

achieved.
A financial plan is thus, a statement of what is to
be done on the future
 Growth as Financial Management Goal
 Increasingthe market value of the owners equity and not
just growth by itself.
A desirable consequence of good decision making but it is
not an end unto itself.
The Financial planning Process
 Financial planning is an important aspect of the firm’s operations
because it provides road maps for guiding, coordinating, and
controlling the firm’s actions to achieve its objectives.

 Two key aspects of the financial planning

 Cash planning
involves preparation of the firm’s cash budget.
 Profit planning
involves preparation of pro forma statements. Both the cash
budget and the pro forma statements are useful for internal
financial planning. They also are routinely required by existing
and prospective lenders.
Perspective of Financial planning
 Financial planning process begins
long-term, or strategic, financial plans. These plans, in turn,
guide the formulation of short-term, or operating, plans and
budgets
 LONG-TERM (STRATEGIC) FINANCIAL PLANS

 lay out a company’s planned financial actions and the

anticipated effect of those actions over periods ranging from 2
to 10 years.
 Five-year strategic plans, which are revised as significant new
information becomes available, are common
 firms that are subject to high degrees of operating uncertainty,
relatively short production cycles, or both tend to use shorter
planning horizons.
 SHORT-TERM (OPERATING) FINANCIAL PLANS

 specify short-term financial actions and the anticipated

effect of those actions.
 These plans most often cover a 1- to 2-year period. Key
inputs include the sales forecast and various forms of
operating and financial data
 Key outputs include a number of operating budgets, the cash
budget, and pro forma financial statements
What are the Benefits that can be
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