FIN300 Notes Class 3

Basic Elements of Financial Planning

Investment in new assets capital budgeting decisions
Degree of financial leverage capital structure decisions
Liquidity requirements ne working capital decisions
Cash paid to shareholders dividend policy decisions

Planning Process
Divide decisions into short-run (<1yr) and long-run (2-5yrs)
Aggregate, e.g. combine all capital budgeting decisions into one
Make realistic assumptions about important variables
Run several scenarios
Determine a worst, normal, and best case scenario

Components:
Inputs
o Current statements
Model
o % of sales method + modifications
Outputs
o Projected cash flow
o Key ratios
o Asset and financial requirements

Percentage of Sales Approach

Can be used as first step in forecasting process
Assumes that most accounts are tied to sales