Long-Term Financial Planning and Growth Models

CHAPTER 3 Long-Term Financial Planning and Growth

Chapter Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

3.1 What is Corporate Financial Planning? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

3.1 What is Corporate Financial Planning? ,[object Object],[object Object],[object Object],[object Object],[object Object]

What Will the Planning Process Accomplish? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

3.2 A Financial Planning Model: The Ingredients ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Sales Forecast ,[object Object],[object Object],[object Object]

Pro Forma Statements ,[object Object],[object Object]

Asset Requirements ,[object Object],[object Object]

Financial Requirements ,[object Object],[object Object],[object Object]

Plug ,[object Object],[object Object]

Economic Assumptions ,[object Object],[object Object]

The Steps in Estimation of Pro Forma Balance Sheet: ,[object Object],[object Object],[object Object]

The Steps in Estimation of Pro Forma Balance Sheet: (continued) ,[object Object],[object Object],[object Object],Present retained earnings + Projected net income – Cash dividends Projected retained earnings

A Brief Example ,[object Object],[object Object],[object Object]

A Brief Example Current Balance Sheet Pro forma Balance Sheet (millions) Explanation Current assets $6 $6.6 30% of sales Fixed assets $24 $26.4 120% of sales Total assets $30 $33 150% of sales Short-term debt $10 $11 50% of sales Long-term debt $6 $6.6 30% of sales Common stock $4 $4 Constant Retained Earnings $10 $11.1 Net Income Total financing $30 $32.7 $300,000 Funds needed (millions)

The Percentage Sales Method: EFN ,[object Object],p = Net profit margin = 0.10 d = Dividend payout ratio = 0.5  Sales = Projected change in sales = $2 million

The Percentage Sales Method: EFN ,[object Object]

3.4 What Determines Growth? ,[object Object],[object Object],[object Object],[object Object]

3.3 What Determines Growth? ,[object Object],[object Object]

The Sustainable Growth Rate in Sales ,[object Object],[object Object],[object Object],[object Object]

Uses of the Sustainable Growth Rate ,[object Object],[object Object]

Increasing the Sustainable Growth Rate ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

3.5 Some Caveats of Financial Planning Models ,[object Object],[object Object],[object Object]

Summary & Conclusions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Summary & Conclusions ,[object Object],[object Object]

Long-Term Financial Planning and Growth Models

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Long-Term Financial Planning and Growth Models

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