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FINANCIAL MANAGEMENT
Financial Forecasting and Planning
The Ingredients of a Financial Plan
A financial plan consists of several ingredients
We will focus on developing the pro formas and the cash budget
Expectations about the economic environment
A sales forecast
Pro forma (forecasted) financial statements
Asset requirements
Required new financing
Cash Budget
Forecasting: The % of Sales Method
Percent of sales method
We will focus on developing the pro formas and the cash budget
The most basic method of forecasting financial statements (income statements and balance sheets)
This method assumes that certain expenses, assets, and liabilities maintain a constant relationship to the level of sales
There are two inputs to this method:
A sales forecast (exogenous)The percentages which are assumed to be constant
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