financial services ok da Vinci code movie night

salamat

1. Financial Planning Process and
Preparation of Budgets and Projected
Financial Statements Lesson 4

2. Objectives: At the end of this lesson, the learners will be able to…. 1. Identify the steps in the financial planning process; 2. Solve problems related to preparation of budgets; 3. Prepare a pro-forma or projected financial statements

3. INTRODUCTION Planning is an important factor in achieving goals or dreams in life. Without plans, life has no
direction at all. Likewise in business, without plans, operation will be disorganized, employees in
organizations will experience low morale, productivity turnover will lower and this will result into a lowered
profits. Financial Planning is a process of framing objectives, policies, procedures, programs and budgets
regarding the financial activities of an enterprise.

4. Objectives of Financial Planning 1. Determine capital requirements – the cost of current and fixed assets,
promotional expenses and long-range planning.
2. Determine capital structure – the composition of capital which
includes the debt-equity ratio both long-term and short-term.
3. Frame financial policies – cash control.
4. Ensure that the scarce financial resources are maximally utilized in the best possible manner.

5. Importance of Financial Planning a. Ensure adequate funds. b. Help in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained. c. Ensure that suppliers of fund are easily investing in companies. D. Help in making growth and expansion programmers which help in long-run survival of the company. E. Reduces uncertainties with regards to changing market trends which can be treated easily through enough funds. F. Reduces uncertainties which can be the hindrance of growth of the company

6. Financial Plan - Is the statement of what to be done in the future. - It gives you a road map for handling your money in a way that cuts stress and build security. - Financial plan is all about BUDGET.

7. Financial planning starts with long term plans which would then translate to short term plans.

8. Characteristics of an Effective Plan: S pecific – target a specific area for improvement M easurable – quantity or at least suggest an indicator of progress A ssignable – specify who will do it R ealistic – state what results can realistically be achieved, given available resources T ime-related – specify when the results can be achieved.

9. Financial Planning Process: 1. Establish your goals and objectives –assess your current financial
situation and identify your priorities.
2. Develop long-term financial goals and short-term financial goals.
3. Gather and consolidate all pertinent information –determine where
you need to go and how to potentially get there. Review the current
financial data. Numerous individual budgets are prepared, including
sales, production, selling expenses and administrative expenses.
4. Analyze the data gathered – develop a profile for your current
situation, including a review of your financial information and
relevant documents. Individual budgets are combined to form a
consolidated budget. From the consolidated budget, project the cash
flow, profitability, and financial conditions.
5. Develop a strategy to address your specific need – customized
strategies based on client’s specific financial status, time horizon, risk
tolerance, goals and objective. Develop a short-term and long-term
plan. Choose ways to achieve your goals. Forecasting and Budgeting
will help.
6. Implement the recommended strategy – simply put your plan into
work.
7. Monitor and review your goals and situation – review your financial
situation and asses the need for any changes. Plans evolve and change
just like life. Once plan is created, it is essentially a piece of history. This is why plan need to be monitored from time to time. Plan: You want to finish college and get a good
job afterwards. Process:
1. To finish college
2. Look for a school that caters your
need. Make a canvass. Do a
research on how much tuition and
miscellaneous fees you would pay.
3. Analyze the advantage and
disadvantage in enrolling such
school. (accessibility, affordability,
environmental-friendly, etc )
4. If affordable but not accessible and
that school will satisfy your needs,
then develop a strategy to address
the gap. (buy bike as transport means)
5. Use your bike to allow you to understand where you want to be (“kaya mo pa ba ?”) 6. Monitor and assess if you can still carry on or need some changes in your strategy.

10. Financial forecasting and budgeting are related, but different, processes. Before budgets are developed, managers set goals and develop plans. Budget specify the financial resources needed to carry out plans. Budgeting – is the process of creating a plan to spend your money. It is simply balancing your expenses with your income. Budget – is a financial plan which allows you to determine in advance whether you will have enough
money to do the things you need to do or would like to do. Forecasting – is the process of making predictions of the future based on past and present data and most commonly by analysis of trends. This is the starting point of business planning. This helps many businesses
in budgeting, planning and estimating future growth.

11. Any forecast of financial requirements involves: a. determining how much money the firm will need during a given period b. determining how much money the firm will generate internally during the same period c. subtracting the funds generated from the funds required to determine the external financial
requirements.

12. QUANTITATIVE APPROACH: A. Time Series Model: 1. Naïve Model – assume that the demand in the next period will
be equal to the demand in the most recent period.
Example: Consider the following sales data for 2019:

13. 2. Moving Average – the number of period n, in which the series of average will be created and computed. Simple Moving Average – used if little or no trend and for smoothing. Formula: SMAt+1 = D1+ Dt−1+ Dt−n+1 n
Where n = number of periods to be averaged
D = data or actual occurrence in a period
SMAt+1 = forecast for the upcoming period

14. 3. Exponential Smoothing- are similar in that a prediction is a weighted sum of past observations, but the model explicitly uses an exponentially decreasing weight for past observations. It does not involve voluminous record to forecast. A continuous adjustment process. The alpha ɑ is used as the smoothing parameter to minimize the error and has a value of 0 to 1. Formula: Y¹t+1 = ɑYt + (1-ɑ) Y’ Where: Y¹t+1 = smoothed value Yt = most recent actual data
Y¹new= exponential smoothed average to be used as the forecast
ɑ = smoothing constant or coefficient

15. B. Associative or Causal Model Regression Method – the demand function for a product is estimated where demand is dependent variable and variables that determine the demand are independent variable. If only one variable affects the demand, then it is called single variable demand function. Linear Regression – shows the relationship between two variables: the dependent and the independent.

16. Estimation of cost: two types of Cost i . Variable cost – cost that change in total as the level of activity changes in the short run and within the relevant range.
✓ In manufacturing – direct materials, direct labor, factory overhead, distribution cost, sales commission
✓ In merchandising – cost of sales, sales commission
✓ In service – direct labor and materials used to perform the services. ii. Fixed cost –cost that remain constant in total regardless of changes in the level of activity within the relevant range.
✓ Committed fixed cost – investment in facilities like depreciation, taxes on realty, rent
✓ Discretionary fixed cost – advertising, research, public relation

17. MIXED Cost – contains the variable and fixed cost.  Use basic statistics to project future values for a target variable. Formula: Y = a + bx Where: Y – cost to be predicted – mixed cost (dependent variable)
a – fixed cost (vertical intercept of the line)
b – variable cost per unit of activity (slope of the regression line)
x – independent variable on which the prediction is to be based – level of activity

18. A plan is useless if it is not quantified. A quantified plan is represented through budgets and projected financial statements. Budget is a company’s tool both for planning and control. At the beginning of the period, it is a plan or standard and at the end of the period, it serves as a control device to help management measure the firm’s performance against the plan so that future performance may be improved.

19. Master Budget has three categories: 1. Operating Budget – concentrates on the operating expenditures, including cost of produce sold in the market or popularly known as cost of sold goods and the revenue or income
2. Financial Budget – predicting the income and expenses of the business on a long-term and short-term basis. Accurate projections of cash flow help the business achieve its targets in the right way.
3. Capital Budget – involve in determining proposed expenditures for property, plant and equipment to support expansion.

20. SALES BUDGET – budget that shows the quantity of each product and the revenue expected to be sold.

21. PURCHASES BUDGET – forecast of quantity and value of materials required to purchase during
the budget period. This budget is closely connected to the production budget. Following points are required to be considered before preparing the purchase budget:

22. PRODUCTION BUDGET – calculates the number of units of products that must be manufactured, and is derived from a combination of the sales forecast and the planned amount of finished goods inventory to have on hand. This consist of three components: Direct Materials Budget; Direct Labor Budget; Overhead Budget.

23. BUDGETED INCOME STATEMENT – projection of revenue, expenses and results of operations for a definite period of time. BUDGETED BALANCE SHEET – the projection of assets or resources needed and source of such assets or resource.

24. Purpose of Budgeting : 1. A forecast of income and expenditure (profitability).
2. A tool for decision making. (motivate managers to achieve the desired results)
3. A means to monitor business performance. (set a standard of evaluating actual performance) To Illustrate:
ABM Company forecasts sales in unit for January to May as follows:

25. Company 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.
Selling price is ₱100/unit. Sales for each month are expected to be collected as follows:
‣ Month of sales: 20%
‣ A month after sales: 50%
‣ 2 months after sales: 30% The purchase cost per unit is ₱50. All purchases this month are paid 10% upon delivery and balance
on the following month. The following expense items will be paid based on the following periods:
‣ Rent payments: Rent of ₱5,000 will be paid each month.
‣ Wages and salaries: Fixed salaries for the year are ₱96,000, or ₱8,000 per month. Wages are
estimated as 10% of monthly sales.
‣ Tax payments: Taxes of ₱25,000 must be paid in April. The following items will be paid based on the following periods:
‣ Fixed-asset outlays: New machinery costing ₱130,000 will be purchased and paid for in April.
‣ Interest payments: An interest payment of ₱6,000 is due in May.
‣ Cash dividend payments: Cash dividends of ₱12,000 will be paid in January.
‣ Principal payments (loans): A ₱20,000 principal payment is due in February

26. Company has a beginning cash balance of ₱80,000 and would like to maintain an ending cash balance of ₱100,000 per month.

27. Analysis and interpretation : Based on the projection and forecast, in terms of profitability, the forecasted sales has a positive outcome as shown in the projected income statement which yield a projected net income of 343,200 or 27.46% net profit margin. However, the cash budget shows a need for additional financing for the first two months in order to maintain the cash balance of the business. It also shows that on the fourth month, the total cash receipt is lesser than the total cash disbursements which resulted into a negative cash flow, this is because a capital outlay of 130,000 is lined up on the budget. Moreover, starting on the third month to fifth month, there is an excess cash which the company could reinvest to earn more profit. Overall, the excess of projected income over the equity indicates that the company’s performance can suffice the operation of the business and there is no need for additional financing as of now.