Financial Planning and Forecasting Overview
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Questions and Answers

What is the total number of purchases needed for the month of January?

  • 1200 (correct)
  • 900
  • 800
  • 1000

    • How many units are forecasted for sales in the month of February?

  • 600
  • 300
  • 500 (correct)
  • 450

    • What is the total ending inventory planned for March?

  • 200
  • 250
  • 150
  • 100 (correct)

    • What will be the unit cost for purchases across all months?

    <p>P4.00/unit</p> Signup and view all the answers

    What is the total forecasted sales for the first quarter?

    <p>1900</p> Signup and view all the answers

    What is the ending inventory for January?

    <p>200 units</p> Signup and view all the answers

    What is the total sales forecast for the first quarter?

    <p>1900 units</p> Signup and view all the answers

    What would be the total purchases needed for January?

    <p>1000 units</p> Signup and view all the answers

    What is the unit cost mentioned for the goods?

    <p>P4.00/unit</p> Signup and view all the answers

    How many total units does the company aim to have at the end of March?

    <p>200 units</p> Signup and view all the answers

    What is the beginning inventory for each month?

    <p>0 units</p> Signup and view all the answers

    What is the total forecasted sales for February?

    <p>500 units</p> Signup and view all the answers

    Which month has the least forecasted sales?

    <p>March</p> Signup and view all the answers

    What is a primary benefit of preparing several cash budgets based on different scenarios?

    <p>To determine the financing needed for the most adverse situation</p> Signup and view all the answers

    Which method is best for creating a realistic pro forma income statement?

    <p>Percent-of-sales method with fixed and variable expense segmentation</p> Signup and view all the answers

    In preparing a pro forma balance sheet, which approach is typically used?

    <p>Judgmental approach with external financing as a balancing figure</p> Signup and view all the answers

    What inputs are commonly required to develop pro forma financial statements?

    <p>Sales forecast for the coming year and key assumptions</p> Signup and view all the answers

    What is the purpose of determining required cash balances in cash budgeting?

    <p>To ensure the ability to meet liabilities, like loan payments</p> Signup and view all the answers

    How many units does the company intend to have as ending inventory for March?

    <p>100</p> Signup and view all the answers

    What is the unit cost for purchases according to the plan?

    <p>4</p> Signup and view all the answers

    What was the beginning inventory for February?

    <p>150</p> Signup and view all the answers

    How many total units are planned to be purchased in January?

    <p>1200</p> Signup and view all the answers

    What is the difference between forecasted sales and total purchases in February?

    <p>100</p> Signup and view all the answers

    What is the total beginning inventory for the first quarter?

    <p>350</p> Signup and view all the answers

    What is the total of ending inventory across all three months?

    <p>350</p> Signup and view all the answers

    What is the total number of units the company plans to purchase in January?

    <p>1200</p> Signup and view all the answers

    If the company maintains an ending inventory of 150 units for February, how many units should it sell in February?

    <p>500</p> Signup and view all the answers

    What is the unit cost for purchases from January to March?

    <p>P4.00/unit</p> Signup and view all the answers

    How many units does the company plan to have in its ending inventory for March?

    <p>100</p> Signup and view all the answers

    What is the total forecasted sales for the first quarter (1QT)?

    <p>1900</p> Signup and view all the answers

    What is the total number of units needed for purchase in February after accounting for beginning and ending inventory?

    <p>450</p> Signup and view all the answers

    If the company has no beginning inventory in January, what is the net total demand for January?

    <p>1200</p> Signup and view all the answers

    What is the total forecasted sales for March?

    <p>400</p> Signup and view all the answers

    What does a cash budget primarily estimate for a firm?

    <p>Short-term cash inflows and outflows</p> Signup and view all the answers

    How is a cash budget typically structured in terms of time?

    <p>Monthly divided into smaller time intervals</p> Signup and view all the answers

    If a firm has a beginning balance of P800 and needs a cash balance of P1,000 each month, what will be the cash deficiency at the end of the month?

    <p>P200</p> Signup and view all the answers

    In which month does the cash budget show a cash deficiency of 400?

    <p>February</p> Signup and view all the answers

    What happens when there is a cash deficiency in a cash budget?

    <p>Short-term loans may be required</p> Signup and view all the answers

    What is the outcome during March according to the cash budget?

    <p>Excess cash available</p> Signup and view all the answers

    What would NOT be considered when preparing a cash budget?

    <p>Investment portfolio growth</p> Signup and view all the answers

    In the context of a cash budget, what do excess cash flows imply?

    <p>Possibility of investment or loan repayments</p> Signup and view all the answers

    Study Notes

    Financial Planning and Forecasting

    • Financial planning involves a structured process, organized by responsibility, for strategic, project, and operational planning. This ensures effective enterprise control and direction.
    • Strategic planning is long-term, focusing on the overall direction of a firm.
    • Operational planning focuses on existing operations, determining effective resource use to achieve short-term and long-term objectives.
    • Project planning involves detailed execution of actions outside the current operational scope.
    • Corporate planning is a formal and systematic process that ensures effective operational, strategic, and project planning by top management.

    Pro-Forma Financial Statements

    • Pro-forma statements are estimated, or forecast, balance sheets and income statements.
    • Information for pro-forma statements comes from the preceding year's financial statements, sales forecasts, and key assumptions.
    • The percent-of-sales method projects expenses as percentages of anticipated sales.
    • Judgmental approach: Estimates account values and external financing to "balance" pro-forma statements.

    Cash Budgets

    • Cash budgets track predicted cash inflows and outflows, used to estimate short-term cash requirements.
    • Typical cash budgets cover one year, divided into smaller time intervals.
    • The more seasonal/uncertain, the more intervals.

    Forecasting (Bad Forecasts)

    • Past examples of poor business predictions include: inventions were considered "fully invented" already(i.e., 1899); limited computer storage was considered adequate for all needs; computers in the home were considered impractical etc.
    • Historical examples of bad forecasts highlight unpredictability in technological advancement.
    • Business leaders and experts can sometimes make wrong predictions.

    Important Planning Concepts

    • Planning is a thought process involving foresight, based on facts and experience, that results in intelligent action.
    • Planning is the act of deciding in advance what needs to be done, to create structure for future operations and achieve desired results.
    • Planning is an intellectually demanding process and should include purpose/knowledge/estimated of future events.
    • Planning is a detailed course of action designed to accomplish future goals.
    • Planning is needed to guide, coordinate, and control company actions to achieve objectives.
    • Management is responsible for setting objectives and defining how to achieve them.

    Operational Plan

    • It starts with specific operational objectives that define future goals.
    • It consists of different plans for marketing, production, human resources.
    • The financial plan is an important element for effective operations.

    Strategic Financial Plans

    • Strategic financial plans outline a company's planned financial activities and their impact over 2-10 years.
    • These plans typically involve detailed consideration of financial activities such as proposed fixed asset investments, research and development, and marketing/product developments.
    • These plans also involve identifying the financial sources required for successful implementation of strategic plans.

    Operating Financial Plans

    • These are short-term financial plans that follow up on strategic plans with anticipated outcomes for those actions.
    • Key inputs include the sales forecast and other financial/operational data,
    • Key outputs include operating budgets, cash budget, and pro-forma financial statements.

    Budget Preparation (Recap)

    • Prepare a sales forecast,
    • Determine expected production volume
    • Estimate manufacturing costs, overhead, and other operating expenses
    • Determine cash flow and other financial impacts.
    • Formulate forecast financial statements

    Master Budget

    • A master budget is a comprehensive summary of a company's plans for a period of time usually 1 year, starting with a sales budget, leading to productions plans, direct labor factory overhead etc and covering all major financial tasks such as cash budget, pro-forma income statement and statements of financial position.

    Example 1 (Cash Receipts)

    • Cash receipt schedules detail the timing of cash inflows.
    • A company's projected sales, credit terms, and collection patterns impact planned inflows and outflows.
    • The collection patterns can impact cash flow and overall business planning.

    Example 2 ( External Funds Needed)

    • External Funds Needed (EFN) calculations determine the need for financing to cover projected increases in assets.
    • EFN is calculated using formulas based on asset/liability relationships to sales, and are specific to each company.

    Additional Readings

    • Links to various resources related to financial planning and forecasting.

    Self-Test Questions

    • Questions about planning, financial planning process, cash budgets, and pro-forma statements to test understanding.

    Learning Activity

    • An activity to develop forecast statements of income and financial position based on previously provided data and information.

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    Related Documents

    Financial Planning and Forecasting PDF

    Description

    This quiz covers essential concepts in financial planning, including strategic, operational, and project planning. It also explores pro-forma financial statements, emphasizing their purpose and preparation using historical data. Test your knowledge on how effective planning impacts organizational success.

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