FINANCIAL PLANNING

One of the most important concepts in the various areas of

finance.
Applied in both public finance and business finance.
Does not exist and operate as an independent activity in
the organization.
Must be firmly anchored on the thrust of the business.
Once a plan is set, it has been QUANTIFIED. A plan that is
not quantified is useless because there will be no basis for
monitoring performance. QUANTIFIED PLANS are in form
of budgets and projected financial statements.
 LONG TERM PLANNING VS SHORT
TERM PLANNING
LONG TERM SHORT TERM
PLANNING PLANNING
Top management is still involved
but there us a more participation
from lower level managers
(production, marketing,
More participation from top
Persons Involved personnel, finance and plant
management
facilities) because their inputs
are crucial at this stage since
they are the one who implement
these plans.
Time Period 2 to 10 years 1 year or less
Level of Detail Less More
Direction of the company Everyday functioning of the
Focus
company
 BUSINESS VISION AND MISSION
The financial plan must be congruent with the corporate vision and mission.
The VISION conveys the ultimate goal of the organization. It outlines the
final map of what the business will be and where the business is going.
The MISSION of the business sets the current business activities and
outlines what the business is for. It lists the relevant undertaking and
carries out or implements various projects for the utilization of the vision.
The GOAL states where all the activities and operation of the business are
directed. It is the refined version of the company’s vision.
The OBJECTIVE is specific and short-term. It is presented in very clear
terms of the actions that must be taken by the business in order to meet its
goals.
FINANCIAL PLANNING
PROCESS
 Forecast settings on sales, cost, expenses,
STEP 1 and capital expenditure

VISION AND MISSION

Goals and Objectives
Preparation of the projected financial
STEP 2 statements.

Analysis and evaluation of the projected

STEP 3 financial statements.

Review and evaluation of the projected

STEP 4 financial plan.
 STEPS IN FINANCIAL PLANNING
1. The business makes explicit assumption of the future levels of the following items:
a. sales
b. cost
c. Operating expenses
d. Capital expenditures
e. Borrowing and interest
2. Projected financial statements are prepared
3. The projected financial statements are commonly analyzed and interpreted using
financial mix ratios.
4. The general financial plan is evaluated and reviewed by the top-level management for
improvement taking into account present trends and developments in the external
environment.
THE FORECAST
The first step in financial planning is forecast setting or
the making of assumptions and projections. In making a
forecast or projection, the following are done:
1. The sale projection is estimated and prepared.
2. The production schedule, together with the
estimated cost of production is computed and prepared
3. The marketing and administrative expenses are
estimated
4. Additional funds requirements are determined
5. The projected financial statements are prepared.
THE FORECAST
The sales Forecast
The preparation of the sales forecast is the initial step in
taking the projection. In other words one must always
start with the sales forecast when making financial
projection.
Thus, the business has to make projected sales for the
next two to five years. In the preparation of the projected
sales, the sales performance of the last five preceding
years is considered determine is the sales trend is
increasing, decreasing, or maintain a steady level.
THE FORECAST
Generally, it is the marketing department that is primarily responsible for
preparing the sales forecast. Different forecasting tools are used to predicr future
sales. Among these forecasting techniques are the following:
a. Simple moving average
b. Weighted moving average
c. Arithmetic straight line
d. Arithmetic geometric curve
e. High-low point method
f. Method of least square

The data on the sales of previous years should be plotted in a two-year

dimensional graphing paper to obtain a proper perspective of the trend.
The data on the sales of previous years should be plotted in a two-
dimensional graphing paper to obtain a proper perspective of the trend.
For example, JENNY trading presents the following sales figures in terms
of units:

2014 22, 800

2015 24, 500
2016 28, 750
2017 32, 900
2018 36, 350
Assuming that the business applies the arithmetic geometric curve to determine the
projected sales in year 2019, the percentage of increase every year and the average
change percentage are determined as follows:

Percentage of increase
2014 -
2015 (24,500-22,800)/22, 800 7.46 %
2016 (28,750-24,500)/24,500 17.35 %
2017 (32,900-28,750)/28,750 14.43 %
2018 (36,350-32,900)/32,900 10.49 %
Total 49.73 %
Divide by 4

Average change percentage

Based on the average change percentage of 12.43%, the projected sales of JENNY Trading for 2019
will be 40, 868 units (36, 350 X 112.43 %)