THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE!

THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT

SENIOR HIGH SCHOOL DEPARTMENT

FIRST SEMESTER, A.Y.2021-2022 LEARNING MODULE GRADE 12
for
SUBJECT: BUSINESS FINANCE

MODULE NO.: 2
WEEK NO.: 5-6

TOPIC: The Steps in the Financial Planning Process and the Formula and Format for the Budget Preparation and Projected Financial
Statement

a.) identify the steps in the financial planning process

OBJECTIVES: b.) illustrate the formula and format for the preparation of budgets and projected
financial statements

CONTENT:

LESSON 3: The Financial Planning Processes

All individuals, professionals, businessmen will have their goals to be in profession or business.
However, about objectives at business finance, we have to plan them. You should know how you can save a
lot, you must know your goals. Here is the step by step financial planning process which includes six steps in
financial planning process which will assist you. You should be aware of the life cycle approach of financial

planning process to structure your goals.

The long-term goals that you plan to achieve in the future, play an important role in everyday life as
you already have in mind a set of plans for the next five years. If you are not yet sure what you want in five

years from now will probably still have an idea of what kind of life you want. You are still in the process of
planning.

Planning is an important aspect of the firm’s operations because it provides road maps for guiding,
coordinating, and controlling the firm’s actions to achieve its objectives. Management planning is about
setting the goals of the organization and identifying ways on how to achieve

them.

There are two phases of financial planning. Financial planning starts with long term plans which
would then translate to short term plans.

Strategic vs. Tactical Planning

Long-term financial plans or the strategic plans 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. It also include would be termination of existing projects, product lines, or lines of
business; repayment or retirement of outstanding debts; and any planned acquisitions.
Short-term financial plans or the tactical plans specify shortterm financial actions and the anticipated
impact of those actions. Part of short term financial plans 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.

The Financial Planning Processes

There are six steps of financial planning processes that you should know. It includes:

Step 1: Determine Your Current Financial Situation

In this first step of the financial planning process, you will determine your current financial situation
with regard to income, savings,

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 Long-Term Planning Short Term Planning
Persons More participation from Top management is still involved but there is more participation from
Involved top management lower level managers (production, marketing, personnel, finance and plant
facilities) because their inputs are crucial at this stage since they are the
ones who implement these plans
Time 2 to 10 years 1 year or less
Period
Level of Less More
Detail
Focus Direction of the company Everyday functioning of the company
living expenses, and debts. Preparing a list of current asset and debt balances and amounts spent for various items gives
you a foundation for financial planning activities.

Step 2: Develop Financial Goals

You should periodically analyze your financial values and goals. This involves identifying how you feel about
money and why you feel that way. The purpose of this analysis is to differentiate your needs from your
wants. Specific financial goals are vital to financial planning. Your financial goals can range from spending all
of your current income to developing an extensive savings and investment program for your future financial
security.
Step 3: Identify Alternative Courses of Action
Developing alternatives is crucial for making good decisions. Although many factors will influence the
available alternatives, possible courses of action usually fall into these categories:
 Continue the same course of action.
 Expand the current situation.
 Change the current situation.
 Take a new course of action.
 Not all of these categories will apply to every decision situation; however, they do represent possible
courses of action.
 Creativity in decision making is vital to effective choices.

Step 4: Evaluate Alternatives

You need to evaluate possible courses of action, taking into consideration your life situation, personal values,
and current economic conditions.

Consequences of Choices. Every decision closes off alternatives. For example, a decision to invest in stock
may mean you cannot take a vacation. A decision to go to school full time may mean you cannot work
full time. Opportunity cost is what you give up by making a choice. Decision making will be an ongoing part
of your personal and financial situation. Thus, you will need to consider the lost opportunities that will
result from your decisions.

Evaluating Risk. In many financial decisions, identifying and evaluating risk is difficult. The best way to
consider risk is to gather information based on your experience and the experiences of others and to use
financial planning information sources.

Financial Planning Information Sources. Relevant information is required at each stage of the decision-
making process. Changing personal, social, and economic conditions will require that you continually
supplement and update your knowledge.

Step 5: Create and Implement a Financial Action Plan

In this step of the financial planning process, you develop an action plan. This requires choosing ways
to achieve your goals. As you achieve your immediate or short-term goals, the goals next in priority will come
into focus.
To implement your financial action plan, you may need assistance from others. For example, you may
use the services of an insurance agent to purchase property insurance or the services of an investment
broker to purchase stocks, bonds, or mutual funds.

Step 6: Re-evaluate and Revise Your Plan

Financial planning is a dynamic process that does not end when you take a particular action. You
need to regularly assess your financial decisions. Changing personal, social, and economic factors may
require more frequent assessments.
When life events affect your financial needs, this financial planning process will provide a vehicle for
adapting to those changes. The figure below represents the financial planning processes.

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Lesson 2 Formula and Format for the Preparation of Budgets and Projected Financial Statement

In planning, the goal of maximizing shareholders’ wealth must always be put in mind. Therefore, the following
criteria must be used for an effective planning:

 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.

A plan is useless if it is not quantified. A quantified plan is represented through budgets and projected or
proforma financial statements. These budgets and pro-forma financial statements are useful for controlling.
They serve as the bases for monitoring actual performance. Meeting the plans is good. However, failing to
meet the plans is not equivalent to failure if the reasons for not meeting such plans can be justified especially
when the reasons are fortuitous in nature and are beyond the control of management. Measuring actual
performance vis a vis the plans even at the early start of the year allows the management to assess the
company’s performance and come up with remedial actions if warranted.

The Sales Budget

This is how a sales budget is formulated. The most important account in the financial statement in
making a forecast is sales. To forecast means is to plan beforehand. Since most of the expenses are correlated
with sales, the sales budget is formulated. Financial Statement analysis discussed in your Accounting
subjects that cost of sales ratio, gross profit ratio, and variable operating expenses ratio are based on the
sales figure. Given the importance of the sales forecast, the financial manager must be able to support this
figure with reasonable assumptions.

SALES BUDGET
Formula: Forecasted unit sales x Price per unit= Total gross sales
The following external and internal factors should be considered in forecasting sales:

External Internal
• Gross Domestic Product • production capacity
(GDP) growth rate • man power requirements
• Inflation • management style of managers
• Interest Rate • reputation and network of the controlling
• Foreign Exchange Rate stockholders
• Income Tax Rates • financial resources of the company
• Developments in the industry
• Competition
• Economic Crisis
• Regulatory Environment
• Political Crisis
Figure 2: Factors that Influence Sales

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External Factors

Macroeconomic Variables. Macroeconomic variables such as the GDP rate, inflation rate, and interest rates,
among others play an important role in forecasting sales because it tells us how much the consumers are
willing to spend. A low GDP rate coupled by a high inflation rate means that consumers are spending less on
their purchases of goods and services. This means that we should not forecast high sales of the periods of low
GDP.

Developments in the Industry. Products and services which have more developments in its industry would
likely have a higher sales forecast than a product or service in slow moving industry. Consumer
trends are always changing, thus the industry should be competitive to be able to appeal to more customers
and stay in the market.

Competition. Suppose you are selling bread and you know that each person in your community eats an
average of one loaf of bread a day. The population of your community is 500 people. If you are the only
person selling bread in your town, then your sales forecast is 500 units of bread. However, you also have to
take account your competition. What if there are 4 other sellers of bread? You will need to have to divide the
sales between the 5 of you. Does this mean your new forecast should be 100 units of bread? Not necessary.
You should also know the preference of your consumers. If more of them would prefer to buy more bread
from you, then you should increase your sales forecast.

Internal Factors

Production Capacity and manpower. Suppose that you have already evaluated the macroeconomic factors
and identified that there is a very strong market for your product and consumers are very likely to buy
from you. You forecasted that you will be able to sell 1,000 units of your product. However, you only have 20
employees who are able to produce 20 units each. Your capacity cannot cover your expected demand hence,
you are limited by it. To be able to increase capacity, you should be able to expand your operations.
There is an implications if sales budget is not correct. If understated, there can be lost opportunities
in the form of forgone sales. If it is too optimistic, the management may decide to unnecessarily
increase capacity or hire more employees and end up with more inventories.

Production Budget
What a production budget is and how it is formulated? A production budget provides information regarding
the number of units that should be roduced 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

Let us have the following examples:

Company A forecasts sales in units for January to May as follows:

Jan Feb Mar Apr May

Units 2,000 2,200 2,500 2,800 3,000

Note: Ending inventory of current period is beginning inventory of next period:

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 Company A produce in order to fulfill the expected sales of the company?

Answer:

MONTH
January February March April May Total
Projected Sales 2,000 2,200 2,500 2,800 3,000 12,500
Target level of ending 100 100 100 100 100 500
inventories
Total 2,100 2,300 2,600 2,900 3,100 12,600
Less: Beginning inventories 50 100 100 100 100 50
Required production 2,050 2,200 2,500 2,800 3,000 12,500

PROJECTED FINANCIAL STATEMENTS

Projected financial statements is a tool of the company to set an overall goal of what the company’s
performance and position will be for and as of the end of the year. It sets targets to control and monitor the
activities of the company.
A historical financial statement is provided for you to make your forecast.

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 Here are the following reports that may be forecasted:
Projected Income Statement
Projected Financial Position
Projected Cash Flows

Financial forecasts assist businesses in the attainment of their goals. They are the future predictions of
finances which provide details of actual the results or progress of performances. Predicting the financial
future of a business needs a lot of considerations especially if the business has not yet been established and
has none financial history. The forecasting and making adjustments will enable a business to become
more precise and accurate in numbers in the future.

What Is Projected Income?

Wood, C. (2020) said the projected income is an estimate of the financial results you'll see from your business
in a future period of time. It is often presented in the form of an income statement, although it doesn't have
to be. The chart above represents a projected income of Company A.

How It's Estimated?

Let's say the ABM Supermarket is considering an expansion. You have decided to put together a projected
income statement for the following year to see if the new products are dominating the market.

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The balance sheet shows a business's actual, historical financial positions, while a projected balance sheet
communicates expected changes in future asset investments, outstanding liabilities and equity financing. Businesses
may consider a projection of a balance sheet as to facilitate long-term, strategic planning which often concern future
asset growth and how it may be supported by increased financing through both debt and equity. It provides the most
relevant financial information needed in the business planning process. The chart above represents a projected
Financial Position for 5 years

If you want to predict your business’s cash flow, create a cash flow projection. A cash flow projection estimates the
money you expect to flow in and out of your business, including all of your income and expenses. The chart above is an
example of projected cash flows (Kappel, M. 2019).

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THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT

SENIOR HIGH SCHOOL DEPARTMENT

FIRST SEMESTER, A.Y.2021-2022 LEARNING MODULE GRADE 12
for
SUBJECT: BUSINESS FINANCE
MODULE NO.: 3
WEEK NO.: 5-6
TOPIC: The Steps in the Financial Planning Process and the Formula and Format for the Budget Preparation and Projected
Financial Statement

ACTIVITY NO.: 1

NAME: __________________________________________________________ GRADE & SECTION: ________________________

GENERAL INSTRUCTIONS:

a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.

Directions: Choose the letter corresponding to the correct answer for each of the questions
provided below. Write the letter of the answer before the number.
1. Which of the following statements about budgeting is incorrect?
a. Budgets provide direction and coordination.
b. Budgets motivate staff.
c. A budget is a financial plan.
d. A budget looks back and review performance.

2. Which of the following is normally prepared first?

a. Cash Budget
b. Production Budget
c. Sales Budget
d. None of the above

3. What is a sales budget?

a. A plan of items to be sold.
b. A plan of how much an item will cost.
c. A plan for how much money should be made in a given period.
d. A plan for tracking an inventory and how much they sell.

4. Why many small businesses do not use budget?

a. Budgeting is for large firms only.
b. Budgeting can be time consuming.
c. Small businesses do not record variances.
d. All of the above.

5. Which of the following is NOT a benefit of budgeting?

a. It is a source of motivation.
b. It is a means of coordinating business activities?
c. It prevents company to incur net losses.
d. It promotes study, research, and focus on the future.

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SUBJECT: BUSINESS FINANCE
MODULE NO.: 3
WEEK NO.: 5-6
TOPIC: The Steps in the Financial Planning Process and the Formula and Format for the Budget Preparation and Projected
Financial Statement

ACTIVITY NO.: 2

NAME: __________________________________________________________ GRADE & SECTION: ________________________

GENERAL INSTRUCTIONS:

a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.

Directions: Calculate the production budget (Php) of Company X, given

the following data:
Year 1 Year 2 Year 3
Sales (in units) 5,000 10,000 15,000
Beginning Inventory 1,500 2,500 4,000
Ending Inventory 3,000 5,000 7,000
Production Budget Php Php Php

MATCHING TYPE
Directions. Match column A to Column B. Write your answer before the number.
Column A Column B
1. This financial statement reports a operations Forecasting
sales, expenses, profits or losses for a period of
time.
2. An integral part of the planning process that Budget
makes future predictions regarding sales trends
3. It is a detailed schedule showing the expected Income Statement
sales for the budget period.
4. It is a plan that indicates an operation’s financial Production Budget
objectives
5. It calculates the number of units of products that Sales Budget
must be produced.

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SUBJECT: BUSINESS FINANCE
MODULE NO.: 3
WEEK NO.: 5-6
TOPIC: The Steps in the Financial Planning Process and the Formula and Format for the Budget Preparation and Projected
Financial Statement

ACTIVITY NO.: 3

NAME: __________________________________________________________ GRADE & SECTION: ________________________

GENERAL INSTRUCTIONS:

a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.

Directions: Choose the letter corresponding to the correct answer for each
of the questions provided below.
1. Why are budgets useful in the planning activity of an organization?
a. Budgets help communicate goals and provide a basis for evaluation.
b. Budgets provide management with information about the company’s
past performance.
c. Budgets enable the budget committee to earn paycheck.
d. Budgets guarantee the company to be profitable if it meets the
objectives.

2. Which of the following is not a motive for budgeting according to Bible’s

teaching?
a. Buy the things I want b. Stay out of debt
c. Buy the things I need d. Have enough to give
3. What is the formula for computing production budget?
a. Expected Sales in Units + Planned Ending Inventory Units – Beginning Inventory in
Units
b. Expected Sales in Units + Beginning Inventory in Units + Planned Ending Inventory
Units
c. Planned Ending Inventory Units + Beginning Inventory in Units – Expected Sales in
Units
d. None of the above
4. Government usually_______________________.
A. borrows funds directly from financial institutions.
B. maintains permanent deposits with financial institutions.
C. is a net supplier of funds.
D. is a net demander of funds.

5. By definition, the money market involves the buying and selling of

______.
A. funds that mature in more than one year.
B. flows of funds.
C. stocks and bonds.
D. short-term funds

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SUBJECT: BUSINESS FINANCE
MODULE NO.: 3
WEEK NO.: 5-6
TOPIC: The Steps in the Financial Planning Process and the Formula and Format for the Budget Preparation and Projected
Financial Statement

ACTIVITY NO.: 4

NAME: __________________________________________________________ GRADE & SECTION: ________________________

GENERAL INSTRUCTIONS:

a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.

Fill in the Table

Directions: Complete the table below.

Habakkuk Company
Sales Budget
For the Year Ending December 31, 2020

SALES BUDGET QUARTER

Formula Quarter 1 Quarter 2 Quarter 3 Quarter 4
Forecasted unit sales 5,500 6,000 7,000 8,000
X Price per unit 10 10 12 12
Total gross sales