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FINANCIAL FORECASTING AND PLANNING-BY UMMIBARAKAH ISMAIL - Coggle Diagram
FINANCIAL FORECASTING AND PLANNING-BY UMMIBARAKAH ISMAIL
financial forecasting
financial forecasting means a systematic projection of the expected action of finance through financial statements.
"Forecast’ means to form an opinion beforehand i.e. to make a prediction
mention that such forecasting needs past records, cash flow and fund-flow behaviour, the applications of financial ratios etc. along with the industrial economic condition.
The merits of the financial forecasting
(ii) It helps to explain the requirement of funds for the firm together with the funds of the suppliers
(i) It can be used as a control device in order to fix the standard of performances and evaluating the results thereof
(iii) It also helps to explain the proper requirements of cash and their optimum utilisation is possible and so surplus/excess cash, if any, invested otherwise.
financial planning process
2) profit planning
usually done by means of pro-forma financial statements
1)cash planning
involves preparation of the firm's budget
Is a statement of the firm’s planned inflows and outflows of cash
used by the firm to estimate its short-term cash requirement, with particular attention to planning for surplus cash and for cash shortages.
gives the financial manager a clear views of the timing of the firm’s expected cash inflows & outflows over a given period.
Steps in preparing Cash Budget
2.Determine the amount and timing of cash disbursement
3.Determine the net cash flow
1.Determine the amount and timing of cash receipts
4.Prepare the cash reconciliation accounts
4 major financial forecasts
industry forecast
sales forecast
funds forecast
economic forecast
objectives of forecasting
prepare to take advantages of future opportunities
prepare contingency plans
to reduce cost of responding to emergencies by anticipating the future occurences
prepare to deal with possible outcomes
Financial Planning
an important aspect of the firm’s operations it provides a road maps for guiding, coordinating and controlling the firm’s actions to achieve its objectives