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Financial Planning Tools and Concepts - and and

Here are the sales and cash disbursement estimates for Blackbeard Superstore for January through July: January: Sales: P100,000 Cash Disbursements: P80,000 February: Sales: P120,000 Cash Disbursements: P90,000 March: Sales: P150,000 Cash Disbursements: P100,000 Beginning Cash Balance: P25,000 April: Sales: P180,000 Cash Disbursements: P120,000 May: Sales: P200,000 Cash Disbursements: P130,000 June: Sales

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Christian Zebua
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157 views

Financial Planning Tools and Concepts - and and

Here are the sales and cash disbursement estimates for Blackbeard Superstore for January through July: January: Sales: P100,000 Cash Disbursements: P80,000 February: Sales: P120,000 Cash Disbursements: P90,000 March: Sales: P150,000 Cash Disbursements: P100,000 Beginning Cash Balance: P25,000 April: Sales: P180,000 Cash Disbursements: P120,000 May: Sales: P200,000 Cash Disbursements: P130,000 June: Sales

Uploaded by

Christian Zebua
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Planning Tools and

Concepts - Financial Planning


Process and Preparation of
Budgets and Projected Financial
Statements
Management Planning - is about
setting the goals of the organization
and identifying ways on how to
achieve them (Borja& Cayanan, 2015).
Strategic vs. Tactical Planning
A strategic plan supports the organization's
vision and mission statements by outlining the
high-level plan to achieve both. A tactical plan
answers "how do we achieve our strategic
plan?" It outlines actions to achieve short-
term goals, generally within a year or less.
Two Phases of Financial Planning
Long-Term Financial Plans
- These are a set of goals that lay out the overall direction of the
company.
- A long-term financial plan is an integrated strategy that takes into
account various departments such as sales, production, marketing, and
operations for the purpose of guiding these departments towards
strategic goals.
- Those long-term plans consider proposed outlays for fixed assets,
research and development activities, marketing and product
development actions, capital structure, and major sources of financing.
- Also included would be termination of existing projects, product lines,
or lines of business; repayment or retirement of outstanding debts; and
any planned acquisitions (Gitman & Zutter, 2012).
Short-Term Financial Plans
- Specify and the anticipated impact of those
actions. Part of short term financial plans short-term
financial actions include setting the sales forecast
and other forms of operating and financial data. This
would then translate into operating budgets, the
cash budget, and pro forma financial statements
(Gitman & Zutter, 2012).
- For the purpose of this topic, emphasis will be
made on short-term financial planning.
The Financial Planning Process
1) Set goals or objectives.
For corporations, long term and short term
objectives are usually identified. These can
be seen in the company’s vision and
mission statements. The vision statement
states where the company wants to be
while the mission statement states the
plans on how to achieve the vision.
Jollibee Foods Corporation (JFC)
Vision: To excel in providing great tasting food that meets local
preferences better than anyone; To become one of the three largest and
most profitable restaurant companies in the world by 2020.
Mission: To serve great tasting food, bringing the joy of eating to
everyone.
McDonalds Philippines
Vision: First to respond to the fast changing needs of the Filipino family;
First choice when it comes to food and dining experience; First mention
as the ideal employer and socially responsible company; First to respond
to the changing lifestyle of the Filipino family.
Mission: To serve the Filipino community by providing great-tasting food
and the most relevant customer delight experience.
2) Identify Resources.
Resources include production capacity, human
resources who will man the operations and financial
resources (Borja & Cayanan, 2015).
3) Identify goal-related tasks
4) Establish responsibility centers for accountability
and timeline.
There must be a timeline for the activities, especially
since they were allotted a specific time to do the
activity.
5) Establish the evaluation system for monitoring and
controlling.
For corporations, the management must establish a
mechanism which will allow plans to be monitored. This
can be done through quantified plans such as budgets and
projected financial statements. The management will then
compare the actual results to the planned budgets and
projected financial statements. Any deviations from the
budgets should be investigated.
6) Determine contingency plans.
In planning, contingencies must be considered as
well. Budgets and projected financial statements
are anchored on assumptions. If these
assumptions do not become realities,
management must have alternative plans to
minimize the adverse effects on the company
(Borja & Cayanan, 2015).
Characteristics of an Effective Plan
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.
Sales Budget
- The most important account in the financial
statement in making a forecast is sales since most of
the expenses are correlated with sales.
- Given the importance of the sales forecast, the
financial manager must be able to support this
figure with reasonable assumptions. The following
external and internal factors should be considered in
forecasting sales:
Production Budget
- A 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 follows:

Required production in units = Expected Sales +


Target Ending Inventories - Beginning Inventories
- Moreover, Company A 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.
- How many units should [A] Company produce in order to fulfill the
expected sales of the company?
Cash Budget
- For a business enterprise, having the right amount of cash is
important since cash is used to make payments for purchases,
for operational expenses, to creditors, and for other
transactions.
- The cash budget forecasts the timing of these cash outflows
and matches them with cash inflows from sales and other
receipts. The cash budget is also a control tool to monitor the
way the company handles 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 (Gitman
& Zutter, 2012).
Example Problem:
Marshall D. Teach, a financial analyst for Blackbeard Superstore, has prepared the
following sales and cash disbursement estimates for the period of January through
July of the current year.
- 70% of sales per month are paid in cash; 20%
are collected after one month; and 10% are
collected after two months
- all disbursements are on a cash basis
- maintain minimum cash balance P50,000
- the beginning cash balance in March is
P25,000
Prepare a cash budget for the months of
March, April, May, June and July.

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