2-finance as a resource.pptVIP

Managing Financial Resources and Decisions Content of this course 1 Sources of finance 2 Finance as a resource 3 Financial decisions 4 Financial performance Cost of Bank Loans Simple Interest Cost of Bank Loans Discount Interest Financial Planning Financial Planning Models Example: Executive Cheese Example: Executive Fruit Planners Beware External Financing and Growth Financial Planning The Financial Planning Process Analyzing the investment and financing choices open to the firm. Projecting the future consequences of current decisions. Deciding which alternatives to undertake. Measuring subsequent performance against the goals set forth in the financial plan. Financial Planning Planning Horizon - Time horizon for a financial plan. Departments are often asked to submit 3 alternatives Optimistic case = best case Expected case = normal growth Pessimistic case = retrenchment Financial plans help managers ensure that their financial strategies are consistent with their capital budgets. They highlight the financial decisions necessary to support the firm’s production and investment goals. Financial Planning Why Build Financial Plans? Contingency planning Considering options Forcing consistency Financial Planning Models Financial Planning Models Pro Formas - Projected or forecasted financial statements. Percentage of Sales Model - Planning model in which sales forecasts are the driving variable and most other variables are proportional to sales. Balancing Item - Variable that adjusts to maintain the consistency of a financial plan. Also called plug. Executive Cheese Current Income Statement and Balance Sheet Executive Cheese Pro forma Income Statement and Balance Sheet Executive Cheese Pro forma Balance Sheet with dividends fixed at $180 and debt used as the balance item. Executive Fruit Executive Fruit Executive Fruit Executive Fruit Executive Fruit Planners Beware Many models ignore realities such as depreciation, taxes, etc. Percent of sales methods are not