FINANCE MIDTERMS

FORECASTING
Planning – the process of establishing goals and
identifying courses of action (strategies) to meet the
goals.

Financial management is one part of the strategic plan,

as is planning for marketing and production.

Financial planning is a process of anticipating future

needs and establishing courses of action today to meet
financial needs in the future.

Financial management and planning are concerned with

when funds will be needed and how much will be
available from internally generated sources.

Several specific techniques are used in the planning

process. An example is the break-even analysis, which
determines the level of output and sales necessary to
avoid sustaining losses.

By identifying the firm’s expected cash inflows and

outflows and forecasting the anticipated levels of
assets, liabilities, and retained earnings, these methods
determine if a firm will need additional financing.
Depending on what the forecasts indicate, the
management can plan how to raise or use their funds.

FLUCTUATIONS IN ASSET REQUIREMENTS

The level of a firm’s assets within a firm change. Firms

whose sales are primarily seasonal (firms that sell pools)
or cyclical (firms that sell homes) will experience
periodic increases and decreases in the level of assets
needed for their operations.