2008, R.

A Oluwatusin
2008, R.A Oluwatusin
Overview of Financial Planning
FP is a process of evaluating the impact of
alternative investing and financing decision on the
operating activities and the achievement of the
goals and objectives of the organization.
Formulation of plan
Implementation
Evaluation of performance
FP is usually carried in three phases:

2008, R.A Oluwatusin
Overview of Financial Planning
In formulating financial plan an organization may
adopt any of the following approaches:
1. Bottom up approach in which planning process
starts at the operatives level and proceed
upward through department and division levels
to managements.
2. Top-down process which starts with the firms
top management through the setting of
strategic plan and goals, and then proceeds
downward through the various strata of the
organization's level.
2008, R.A Oluwatusin
Overview of Financial Planning
At the implementation phase the planned actions are
executed within constraints in which the organization
operate.
Financial availability of sufficient fund to execute
projects
Human resources necessary skills and know how of
existing personnel and training opportunities and
exposures to enhance their service delivery system
Environmental - internal and external
During implementation, circumstances do change and
unforeseen opportunities may evolve. The plans must be
sufficiently flexible to enable organization adapt to change
with minimal disruption.
2008, R.A Oluwatusin
Overview of Financial Planning
The evaluation phase may be inter-
twined with the implementation stage
where organization has introduced a
feed forward, rolling budget system into
its financial planning process.
Where it is carried out as post execution
process, it affords the firm to compare its
overall performance to its forecasted
plan.
2008, R.A Oluwatusin
Financial Plan
A financial plan incorporates of three elements : input,
model and output.
Inputs consists of financial projections in terms of sales
receipts from customers, costs in term of administrative
and financial changes.
Model expresses and captures the mathematical
relationship among the inputs and outputs. It is a
dependent statement that holds to be true if the
underlying assumptions exists.
Output of financial plan is made up of proforma financial
statements and set of budgets.
2008, R.A Oluwatusin
Concept of Value
Basic assumption about which ideas (projects) are
desirable or worth striving for.
Represent preferences for ultimate end-states a
company's operations are directed.
The worth of a thing in money or goods at certain
time, that is, the market price.
The intrinsic attributes which make an article or idea
desirable or worthy of esteem for its own sake.
The exchange power which a commodity or service
has in relation to another.
2008, R.A Oluwatusin
Concept of Value
Value operates and exist on the presence of two
phenomena
When a product, service or idea attracts humans
desire and can only be obtained in limited quantity by
concerted effort, it will command value.
The value of a thing is the service or labour it
commands in exchange.
2008, R.A Oluwatusin
The Value Model (VM)
VM is a conditional statements of fact which expresses
the relationship between the existing inputs of an
organization and its expected outputs.
A conditional statement because its validity depends on
the existence of its underlying assumption.
The relationship it represents is usually coded in
mathematical terms to ensure simplicity.
The main focus of VM is on the creation of value
2008, R.A Oluwatusin
The Value Model
2008, R.A Oluwatusin
A working model that provides structural financial
framework for defining and implementing revenue
generating projects.
Usually built on hypothesis that underline the objections
of wealth maximization for business stakeholders.
The concern stakeholders are:
customers expecting to benefit from the project
result
workforce directly involve in the project
implementation
the equity shareholders who subscribe capital
employed in financing the project.
Enterprise Value (EV)
2008, R.A Oluwatusin
A typical value mode for business organization.
The most influential value model encompasses all the
stakeholders interest in determining the worth of a
business firm.
Enterprise Value (EV) Total Enterprise Value (TEV) is
an economic measure reflecting the market value of
the whole business operation of the firm.
It is the sum of claims of all providers of funds both in
term of equity and debt.
It is a fundamental metric used in business valuation
financial modeling portfolio analysis, accounting and
other value based analysis.
EV Model
2008, R.A Oluwatusin
EV = Emv + PSmv + Dmv + MImv + ACmv less CC
Where
Emv - Ordinary Share (Equity) at current market price
Ps - preference share at current market price
Dmv - Debenture (Debt capital) and current market price
MI - Minority Interest claims at current market price
ACmv - Associated Company Investment at current market
price
CCE - Cash and cash equivalent
Please note that all the components are stated at current
market value, not book value.

Investors Value Model
2008, R.A Oluwatusin
The return expected by an investor on capital committed
to a venture is function of possible return from alternative
investment and the risk associated with the project.
Investors valuation model then consist of the discounted
value of the expected stream of future cashflow.
The minimum return an investor will be ready to accept
on any project is the present value of his capital
commitment.
Any surplus above this benchmark is the value premium
the investor derived from the capital outlay.

Investors Value Model
2008, R.A Oluwatusin
Investor value any project in the present value of the
discounted expected cashflow. The discount factor being
the required rate of return from the project plus the risk
premium.
Mathematically this could be expressed as:

t
r
t
Vo =
n
t =1
(1 + r)
n

P
Shareholders Value Perception
2008, R.A Oluwatusin
Every shareholder is an investor
The distinctive feature of equity shareholder is that
he carries the burden of the higher risks than other
investors.
The presence of risk differentiate the perception
and value expectation of every shareholder
Rational shareholders are never enticed by the
short term profit making but long term profitability
which underlies wealth maximization.
Major corporate failures around the world at the
beginning of this century arose out of wrong
perception about shareholders value.


Shareholders Value Perception
2008, R.A Oluwatusin
Generous executive incentive packages and advancing of
personal agenda were vigorously pursued to the detriment of
shareholders fortune.
The right perception should have been long term sustainable
wealth creation
The maximization of the corporate wealth over a long term
as core objectives of corporate entity ensures the
enhancement of shareholder's welfare and corporate value.
This is an efficient market situation that leads to improve
value of the market capitalization of each unit of the
companys equity share.
When as a result of sustained continuous growth in earnings
and retention rate, the value of a companys share
responded with increased market value, shareholder's
wealth is maximized.
Managing Shareholders Value
2008, R.A Oluwatusin
The management of corporate wealth directly affect the
shareholders value.
Corporate manager manages shareholders value by
continuous investment in project that creates value.
A company create value for shareholders when the
shareholders returns exceed the required rate of return
to equity.
This implies that a company creates value in any year
it outperforms its expectations.
The value created for shareholder can be measure
using appropriate parameter: Shareholder Value Added
(SVA)
The Created Shareholder Value = SVA (MVe x ke).
Component of Corporate
Performance Reports
2008, R.A Oluwatusin
Corporate performance reports are captured in its
financial statements
The reports reveal the value created with the
operating year by the enterprise
Three key components of statements are:
Income statement - performance report
Balance sheet - position statement
Cash flow statements - liquidity
Income Statement
2008, R.A Oluwatusin
An operating statement which shows the net result of
business activities of the enterprise
The scope is usually over an accounting period or a
lesser time frame such as quarterly or half-yearly.
Reveals the net revenue accruable to the business and
its owners after all expenses and other stakeholders
interest had been met.
Gives overall picture of the operating efficiency of the
company
Reveal the standard of resources management of the
executive in charge of the administration of the
enterprise
Reveals the result that determines dividend to be
declared and profit to be retained.
Balance Sheet
2008, R.A Oluwatusin
The statement of the financial status of the enterprise as
at the last day of its financial year.
Reflect the cumulative effect of operating performance of
the firm during the financial year.
A composite of accounting equation which expresses the
equality of assets and liabilities.
Assets = Liabilities + Owners Capital
A static view of the organization's position being
expressed as as at the date in which it was prepared.
Matches what the business owns with the claims against
them.
The snapshot of the financial health of the operation of
the enterprise.


Cashflow Statement
2008, R.A Oluwatusin
The reports that bridge the unexpressed gap between
Income Statement and Balance Sheet figures
The statement reveals the receipts and use of cash
and cash equivalent by the organization during the
accounting year.
An unbiased revelation of the cash management
potential of the business and its top managers
Links the net result from Income Statement to cash
figure on the Balance Sheet
It is prepared strictly in Nigeria through the use of
Direct method which emphasized the cash
transaction component of business activities.

Conclusion
2008, R.A Oluwatusin
The value of a business derives from the cumulative result
of its operating performance as shown in its income
statement.
The effect of such performance are reflected in the assets
and liabilities disclosed on the Balance Sheet at the end of
each financial year.
The liquidity position of the business which align its value
with the availability of cash to meet obligation as due is
presented in the cashflow.
The three statements help in defining the shareholders
value creation as perceived by the management of the
entity.
This is the umbilical cord that ties financial statement with
the criterion and management of shareholders value.
2008, R.A Oluwatusin