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FINANCIAL FORECASTING AND PLANNING - Coggle Diagram
FINANCIAL FORECASTING AND PLANNING
Financial Planning
Financial Forecasting
important aspect of the firm's operation, it provides a road maps for guiding, coordinating and controlling the firm's actions to achieve its objectives
Cash Budget
statement of the firm's planned inflows and outflows of cash
estimate its short term cash requirement with particular attention to planning for surplus cash and cash shortage
cash surplus - the firm can plan for short term investment
cash shortages - the firm must arrange for short term financing notes payable
Steps Prepare Cash Budget
determine the amount and timing of cash receipts
determine the amount and timing of cash disbursement
determine the net cash flow
prepare the cash reconciliation accounts
REMEMBER !
non cash expenses such depreciation does not actually involve any actual cash flows and exclude in cash budget
if have deficit amount - normally it has to borrow
key aspects of financial planning
cash planning - involves preparation of the firm's cash budget
profit planning - usually done by means of pro-forma financial statements
essential part of all financial planning of corporation as it is the basis for budgeting activities and estimating future financing needs of the company
Percent Of Sales Method Of Financial Forecasting
percent of sales method, assets, liabilities and total expenses are are estimated as a percentage of sales that are then compared with projected sales
these numbers are then used to design a pro forma income statement and balance sheet
Basic Steps Of Forecasting
project's the firm sales revenues and expenses
estimate the level of investment in current and fixed assets
determine the firm's financing needs throughout the planning period
Pro Forma Balance Sheet
Spontaneous Item
the items that vary directly with sales activity
Steps To Compute A Pro Forma Balance Sheet
determine the sales growth
determine the spontaneous item
project the pro-forma balance sheet values
calculate the new level of retained earning
determine the additional fund needed
Non Spontaneous Item
any items that do not vary directly with sales and remain constant