Financial Planning
Financial Planning
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Best case
Analyzing the investment and financing choices open to
the firm Normal growth
Projecting the future consequences of current decisions Retrenchment
Deciding which alternatives to take
Measuring subsequent performance against the goals set
forth in the financial plan
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Requirements for Effective Planning Financial Planning Models
Forecasting - a necessary step in financial planning
Components of Financial Plans
Watching the Plan Unfold - a good plan must be flexible and Output
adaptable
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Financial Planning Models Financial Planning Models
Skipper Riley Corporation
Skipper Riley Corporation
Statement of Comprehensive Income for 2012
Statement of Financial Position for 2012
Revenue 6,000,000
ASSETS
Cost of Goods Sold 5,400,000 90% of Sales
Net Working Capital 600,000 10% of Sales
Earnings Before Interest & Taxes 600,000 10% of Sales
Net Fixed Assets 2,400,000 40% of Sales
Interest 120,000 10% of debt at start of year
Total Assets 3,000,000 50% of Sales
Earnings Before Taxes 480,000
Taxes 192,000 40% of earnings before tax
LIABILITIES & SHAREHOLDERS' EQUITY
Net Income 288,000 Long-term Debt 1,200,000
Shareholders' Equity 1,800,000
Dividends 192000 payout ratio 2/3 Total Liabilities & Equity 3,000,000 equals total assets
Retained Earnings 96,000 Net Income - Dividends
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ASSETS ASSETS
Net Working Capital 660,000 10% of Sales Net Working Capital 660,000 10% of Sales
Net Fixed Assets 2,640,000 40% of Sales Net Fixed Assets 2,640,000 40% of Sales
Total Assets 3,300,000 50% of Sales Total Assets 3,300,000 50% of Sales
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Financial Planning Models Planners Beware
ASSETS
Net Working Capital 660,000 10% of Sales
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