The policy that a firm adopts for short-term finance will be composed of at least two elements: a) The size of the firm’s investment in current assets. This is usually measured relative to the firm’s level of total operating revenues. A flexible or accommodative short-term financial policy would maintain a high ratio of current assets […]
Cash budgeting: it records estimates of cash receipts and disbursements. It is the way of identifying the cash-flow gap on the cash-flow time. Estimated income statement: breakdown of estimated total profit. It reflects all operational transactions and the financial results during the planning period through currency. Estimated balance sheet: it reflects the financial status on […]
The definition of budgeting: the process of translating planning and programming decisions into specific projected financial plans for relatively short periods of time. Budgets are short-range segments of action programs adopted that set out planned accomplishments and estimate the resources to be applied for the budget periods in order to attain those accomplishments.
Just as companies differ in size and products, financial plans are not the same for all companies. However, there are some common elements: a)Sales forecast b)Pro forma statements. c)Asset requirements. d)Financial requirements. e)Personnel requirements f) Economic assumptions.
Because the company is likely to spend a lot of time preparing proposals on different scenarios that will become the basis for the company’s financial plan, it seems reasonable to ask what the planning process will accomplish: a) Interactions. The financial plan must make explicit the linkages between investment proposals for the different operating activities […]
Financial plans always entail alternative sets of assumptions. The financial-planning process might require each division to prepare alternative business plans. a) A worst case. This plan would require making the worst possible assumptions about the company’s products and the state of the economy. It could mean divestiture and liquidation. b) A normal case. This plan […]
Financial planning formulates the method by which financial goals are to be achieved. It has two dimensions: a time frame and a level of aggregation. A financial plan is a statement of what is to be done in a future time. Most decisions have long lead times, which means they take a long time to […]
