Financial Planning and Forecasting

Introduction:

Financial planning- financial planning is important for the optimal utilisation of financial resources. It’s a continuous process of channelizing the financial resources in right direction. It helps in ensuring the resources are being allocated properly to realise the strategic goals and objectives. This process can be viewed as single procedure involving both operations and financing. People responsible for operations focus on production, while people taking care of financial planning find avenues to finance the operations. Budgets are the often outcome of financial planning. Pro-forma or Budgeted financial statements are the most commonly used form of budgets which includes sales forecasts, production forecasts etc.

Financial forecasting- it’s a process of estimating or predicting how a business will fare well in future. The most commonly used financial forecast is income statement. The process of financial forecasting depends heavily on the past records, cash flow, fund flow behaviour, financial ratios etc. and the external industrial economic condition. It’s a type of plan which predicts the future outcome of activities. It can be used as a perimeter to compare the standard of performance and analysing the results. Financial planning helps immensely in estimating the requirement of the funds for the firm together with the funds given by the suppliers. It helps in estimating the need of cash and its optimal utilisation and also gives an idea if there is chance of excess or surplus cash left out.

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Steps in financial Planning:

1. Step one- the first step in financial planning is setting goals for the plan. It is achieved by quantifying specific number of goals within specified time period and specifying any financial goals within those parameters. Objectives are ranked according to the priorities and analysed in respect to the available resources and other limitations. The main task of first step in financial planning is to assist in establishing financial objectives.
2. Step second- second step in the process of financial planning involves gathering of data which is done mostly by filling up the survey form. Qualitative data furnishes the information regarding goals and objectives of the firm while quantitative data provides information regarding the financial status of the firm with help of documents like investment, cash flow, liabilities and other obligations etc.
3. Step third- step third in financial planning involves in processing and analysing the information gathered in step second. Evaluation of firm’s financial position and current cash flow statements. This information is analysed in order to determine the strength and weaknesses in the finances of the firm. Further, firm’s objectives are evaluated in the light of available resources and fund flow. it is the main role of financial planning to analyse the potential options to realise the firm’s objectives.
4. Step four- it involves recommending the comprehensive financial plan for the firm. In this step, a proper discussion is undertaken by the management to analyse the each strategy proposed in the tentative financial plan.
5. Step fifth- this step includes execution of financial plan. Financial planning team work closely with those responsible for successful implementation of plan in order to ensure it’s executed exactly the way it’s planned.

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1. Step one- it involves establishing a base year in order to compare the cash flow in present or estimated cash flow in future to that of base year.

2. Step two- step two in financial forecasting revolves around the evaluation of revenue and expenditure growth trends to observe the pattern of their progress to estimate accurately for the future trends.

3. Step three- in this step all the assumptions established under the step two are clearly enunciated and specified.

4. Step four- after clearly specifying the underlying assumptions; there arise the need to adopt a suitable forecasting method. There are two types of financial forecasting method:

• (a) Qualitative technique of financial forecasting- it involves taking in to consideration executive opinion, reference class forecasting, sales forces polling, consumer survey, scenario writing etc.
• (b) Quantitative technique of financial forecasting- it includes pro-forma financial statements, time-series forecasting, cause-effect forecasting etc.

5. Step five- in this step the reliability and validity of the data, collected and used to establish the assumptions, is evaluated.

6. Step six- in this step the comparative study is undertaken of actual revenue generated and expenditure incurred against the forecast, and explanation is provided if there is an variance between the actual data and forecast data. Students all around the world seek help of corporate finance assignment help to complete their finance assignment on time and score good grades.

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Conclusion:

According to the experts at corporate finance assignment help “financial planning and forecasting is determining the value variables at some point in future. This exercise of planning and forecasting is done to facilitate the management’s decision making and charting out the plan for future”.

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