FINANCIAL
FORECASTING
and PROFIT
PLANNING
TOPIC OUTLINE
• Concept, perspective, benefits,
models, and control process of
Financial planning
• Definition, purpose, advantages,
disadvantages, types, and steps in
developing a master budget
• Financial forecasting techniques
• Budgeting/Forecasting methods
FINANCIAL PLANNING
Financial planning is the process of assessing the
current financial situation of a business to identify
future financial goals and how to achieve them.
For planning purposes, it is often useful
PERSPECTIVE OF to think of the future as having a short-
FINANCIAL PLANNING run and a long-run.
SHORT- RUN LONG- RUN PLANNING
PLANNING
• Financial plan usually covers the incoming 12
• Financial plan takes to be the coming for two-five
years
months • long-term financial planning is the process of
• Solving immediate problems and developing projecting revenues and expenditures over a long-
strategies that will lead to results, usually term period, using assumptions about economic
within one year. conditions, future spending scenarios, and other
• Short-term goals should be achievable and salient variables.
adaptable to emerging circumstances. SEVERAL LONG-RUN
SEVERAL SHORT-RUN GOALS • GOALS
Earning a return on
investments
• Reach Revenue Targets • Expansion
• Resolve Cash Flow Issues • acquisition
• Choose the Ideal Business
Structure
PLANNING HORIZONS- time period, first dimension of the planning
• Find Sources of Funding
process that must be established
PERSPECTIVE OF
FINANCIAL PLANNING
LEVEL OF AGGREGATION
The second dimension of planning process that needs to be determined is the level of aggregations
refers to the degree of detail and specificity used when analyzing and
reporting financial information. It's a crucial aspect of financial
planning as it affects the accuracy and relevance of the insights
derived from the analysis.
PERSPECTIVE OF FINANCIAL PLANNING
LEVEL OF AGGREGATION
1. High Level:
• Macroeconomic Analysis
• Industry Analysis
• Portfolio-Level Analysis
2. Medium Level:
• Company-Level Analysis
• Product-Level Analysis
• Project-Level Analysis
3. Low Level:
• Transaction-Level Analysis
• Account-Level Analysis.
Benefits of Financial Planning
1. Resource Allocation
2. Informed Decision-Making
3. Cash flow management
4. Goal Alignment
5. Profitability Enhancement
6. Risk Mitigation
7. Adaptability to Change
8. Stakeholder Confidence
9. Compliance and Governance
Financial Planning Models
Economic environment
assumptions
Provide a foundation for forecasting future financial performance and making
informed decisions. These assumptions are based on expectations about
various economic factors that can influence financial outcomes.
Factors affecting Economic environment
assumptions: Interest Rates
Inflation
Economic Growth
Unemployment
Government Policies
Market Volatility
Commodity Prices
Financial Planning Models
Sales forecasting
Provides a foundation for predicting future revenue and profitability. It
involves estimating the quantity of goods or services that a business
expects to sell over a specific period.
Factors Affecting Sales Forecasting
Accuracy Economic Conditions
Market Trends
Competitive Landscape
Marketing Efforts
Seasonality
Financial Planning Models
Pro forma statements - are projected financial statements that
forecast future financial performance. They serve as crucial tools in
financial planning, providing businesses with a roadmap to anticipate
future revenue, expenses, and financial position.
Financial Planning Models
Asset requirements - they represent the resources a company needs to operate
effectively and achieve its goals. These requirements can vary widely depending on
the industry, business size, and specific objectives.
Key Types of Assets
• fixed asset
• Current
Assets
Financial Planning Models
Financial requirements - represent the funds a company needs to
operate and achieve its objectives. These requirements can vary
significantly based on factors such as industry, business size, growth
strategy, and market conditions.
Key Types of Financial Requirements:
Capital Expenditures (CapEx)
Working Capital
Debt Repayment
Dividend Payments
Research and Development (R&D)
Marketing and Sales
Contingency Plannings
Control Process of Financial Planning
1.Defining Organizational Goals and Objectives
2.Gathering Financial Data and Assessing the Current Situation
3.Analyzing and Forecasting
4.Developing a Financial Plan
5.Implementing the Financial Plan
6.Monitoring and Reviewing
7.Revising and Updating
REFERENCES
• https://planful.com/financial-planning/#:~:text=Finance%20Planning
%20Definition-,Finance%20Planning%20Definition,plan%20to%20support%20those
%20goals.
• Cabrera, M.E, (2015), Financial Management: Principles and Applications Volume 1
• https://online.utpb.edu/about-us/articles/business/balancing-long-term-and-short-term-
financial-planning/#:~:text=Short%2Dterm%20financial%20planning%20is,and
%20adaptable%20to%20emerging%20circumstances.
• https://happay.com/blog/financial-planning/
