Scribd
Upload
149 views

Financial Planning Tools and Concept

1. Financial planning involves forecasting future cash flows and resources to achieve organizational goals. It includes setting short and long-term goals and identifying tasks and responsibilities. 2. Key financial planning tools include sales, production, operations and cash budgets which forecast revenues, production needs, costs and cash positions. These tools use past performance, industry trends and economic factors to project financial statements. 3. Effective financial planning is specific, measurable, assignable, realistic and time-related. It allows organizations to monitor performance and ensure sufficient cash flow and resources.

Uploaded by

Ronamay Par
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
149 views

Financial Planning Tools and Concept

1. Financial planning involves forecasting future cash flows and resources to achieve organizational goals. It includes setting short and long-term goals and identifying tasks and responsibilities. 2. Key financial planning tools include sales, production, operations and cash budgets which forecast revenues, production needs, costs and cash positions. These tools use past performance, industry trends and economic factors to project financial statements. 3. Effective financial planning is specific, measurable, assignable, realistic and time-related. It allows organizations to monitor performance and ensure sufficient cash flow and resources.

Uploaded by

Ronamay Par
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 22

FINANCIAL PLANNING

TOOLS AND

CONCEPT
Why do we need to
study financial planning?
Cash is the lifeblood of any business.
Without cash, it is impossible for any firm
to move forward with their plans and
programs. Finance managers have to be
constantly vigilant to ensure the proper
timing of the inflow and outflow of funds.
Planning is about setting the goals of the organization
and identifying ways on how to achieve them.

The process of financial planning is designed to


forecast future financial results and determine how best
to use the company’s financial resources in pursuit of the
organization’s short-term and long-range objectives.
What is a Financial Plan?
A financial plan is a document that
contains assumptions made by those
involved in financial planning, a review of
past financial performance and trends in
the industry, and projected financial
statements and ratios.
STEPS IN FINANCIAL
PLANNING
STEPS IN FINANCIAL PLANNING
1. Set goals or objectives
• Short-term goal (1 year)
• Medium-term goal (1-4 years)
• Long-term goal (5-10 years or more)

Mission-describes what top managers want their company to become.

Vision- describes how the company will achieve its vision and makes the purpose and

objectives of the company clear.

2. Identify resources

3. Identify goal related tasks

4. Stablish responsibility centers for accountability and timeline

5. Stablish an evaluation system for monitoring and controlling

6. Determine the contingency plans


FINANCIAL PLANNING
TOOLS
Financial Planning tools involve financial
forecasts. It is a management tool that
presents estimated information based on
the past, the current and the projected
financial conditions of a company.
Criteria may be used for effective planning:

Specific– target a specific area for improvement.


Measurable– quantify or at least suggest an indicator
of progress
Assignable– specify who will do it.
Realistic – state what results can realistically be
achieved, given available resources.
Time-related–specify when the result(s) can be achieved
1. SALES BUDGET
The most important financial statement account
in forecasting is sales because almost all other
accounts in the financial statement are affected
by sales. Looking at the accounts in the SFP,
almost all of them are also correlated with sales.
The amount of cash that a company maintains,
its accounts receivable and inventories, property,
plant and equipment, and trade payables are
affected by sales.
The following external and internal factors should be considered in forecasting sales:
External Internal
• Gross Domestic Product •production capacity
(GDP) growth rate
• Inflation • man power requirements
•Interest Rate • management style of managers
• Foreign Exchange Rate • reputation and network of the
Controlling stockholders
•Income Tax Rates •financial resources of
the company
• Developments in the industry
•Competition
•Economic Crisis
• Regulatory Environment
•Political Crisis
2. PRODUCTION BUDGET
Provides information regarding the
number of units that should be produced
over a given accounting period based on
expected sales and targeted level of ending
inventories.
It is computed as:

Required production in units= Expected Sales + Target Ending


Inventories – Beginning Inventories
Example of Production Budget:
How many units should Company K produce in order to
fulfill the expected sales of the company?

Company K forecasts sales in units for January to May as


follows:

January February March April May


Projected Sales 2,000 2,200 2,500 2,800 3,000

•Company K would like to maintain 100 units in its ending


inventory at the end of each month.
•Beginning inventory at the start of January amounts to 50 units.
JANUARY FEBRUARY MARCH APRIL MAY TOTAL

Projected 2,000 2,200 2,500 2,800 3,000


Sales
Target level 100 100 100 100 100 100
of ending
Inventories
Total

Less: Be. 50 100 100 100 100 50


Inventory
Required
Production
JANUARY FEBRUARY MARCH APRIL MAY TOTAL

Projected 2,000 2,200 2,500 2,800 3,000 12,500


Sales
Target level 100 100 100 100 100 100
of ending
Inventories
Total 2,100 2,300 2,600 2,900 3,100 12,600

Less: Be. 50 100 100 100 100 50


Inventory
Required 2,050 2,200 2,500 2,800 3,000 12,550
Production
3. OPERATIONS BUDGET
This refers to the variable and fixed
costs needed to run the operations of the
company but are not directly attribute to
the generation of sales.
3. OPERATIONS BUDGET

Examples:
•Rent Payments
•Wages and Salaries of selling and administrative
personnel
•Administrative Costs
•Travel and representation expenses
•Professional fees
•Interest Payments
•Tax Payments
4. CASH BUDGET
The Cash Budget, or cash forecast, is a statement of
the firm’s planned inflows and outflows of cash. It is used
by the firm to estimate its short-term cash requirements
with particular attention being paid to planning for
surplus cash and for cash shortages (Gitnam & Zutter,
2012). It can be prepared on a monthly or a quarterly
basis for a year. The Cash Budget is a control tool to
monitor the way the company’s handles cash.
Jan Feb March April May Total
Cash Receipts 40,000 144,000 220,000 247,000 275,000 926,000

Less: Cash (53,000) (157,000) (148,000) (321,000) (193,000) (872,000)


Disbursements
Net Cash Flow (13,000) (13,500) 72,000 (74,000) 82,000 53,500

Add: Beginning 80,000 67,000 53,500 125,500 51,500 80,000


Cash
Ending Cash 67,000 53,500 125,500 51,500 133,500 133,500
Balance
Less: Minimum (100,000) (100,000) (100,000) (100,000) (100,000) (100,000)
Cash Balance
Cumulative excess (33,000) (46,500) 25,500 (48,500) 33,500 33,500
cash balance
(Cumulative
required financing)

You might also like