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1、Chapter Outline,26.1 What is Corporate Financial Planning? 26.2 A Financial Planning Model: The Ingredients 26.3 What Determines Growth? 26.4 Some Caveats of Financial Planning Models 26.5 Summary usually taken to be a two-year to five-year period. A Level of Aggregation Each division and operationa
2、l unit should have a plan. As the capital-budgeting analyses of each of the firms divisions are added up, the firm aggregates these small projects as a big project.,26.1 What is Corporate Financial Planning?,Scenario Analysis Each division might be asked to prepare three different plans for the near
3、 term future: A Worst Case A Normal Case A Best Case,What Will the Planning Process Accomplish?,Interactions The plan must make explicit the linkages between investment proposals and the firms financing choices. Options The plan provides an opportunity for the firm to weigh its various options. Feas
4、ibility Avoiding Surprises Nobody plans to fail, but many fail to plan.,26.2 A Financial Planning Model: The Ingredients,Sales forecast Pro forma statements Asset requirements Financial requirements Plug Economic assumptions,Sales Forecast,All financial plans require a sales forecast. Perfect forekn
5、owledge is impossible since sales depend on the uncertain future state of the economy. Businesses that specialize in macroeconomic and industry projects can be help in estimating sales.,Pro Forma Statements,The financial plan will have a forecast balance sheet, a forecast income statement, and a for
6、ecast sources-and-uses-of-cash statement. These are called pro forma statements or pro formas.,Asset Requirements,The financial plan will describe projected capital spending. In addition it will the discuss the proposed uses of net working capital.,Financial Requirements,The plan will include a sect
7、ion on financing arrangements. Dividend policy and capital structure policy should be addressed. If new funds are to be raised, the plan should consider what kinds of securities must be sold and what methods of issuance are most appropriate.,Plug,Compatibility across various growth targets will usua
8、lly require adjustment in a third variable. Suppose a financial planner assumes that sales, costs, and net income will rise at g1. Further, suppose that the planner desires assets and liabilities to grow at a different rate, g2. These two rates may be incompatible unless a third variable is adjusted
9、. For example, compatibility may only be reached is outstanding stock grows at a third rate, g3.,Economic Assumptions,The plan must explicitly state the economic environment in which the firm expects to reside over the life of the plan. Interest rate forecasts are part of the plan.,A Brief Example,T
10、he Rosengarten Corporation is think of acquiring a new machine. The machine will increase sales from $20 million to $22 million10% growth. The firm believes that its assets and liabilities grow directly with its level of sales. Its profit margin on sales is 10%, and its dividend-payout ratio is 50%.
11、 Will the firm be able to finance growth in sales with retained earnings and forecast increases in debt?,A Brief Example,A Brief Example: EFN,The external funds needed,The Steps in Estimation of Pro Forma Balance Sheet:,Express balance-sheet items that vary with sales as a percentage of sales. Multi
12、ply the percentages determine in step 1 by projected sales to obtain the amount for the future period. When no percentage applies, simply insert the previous balance-sheet figure into the future period.,The Steps in Estimation of Pro Forma Balance Sheet: (continued),Compute Projected retained earnin
13、gs as Projected retained earnings = Present retained earnings + Projected net income Cash dividends Add the asset accounts to determine projected assets. Next, add the liabilities and equity accounts to determine the total financing; any difference is the shortfall. This equals the external funds ne
14、eded. Use the plug to fill EFN.,26.3 What Determines Growth?,Firms frequently make growth forecasts on explicit part of financial planning. On the other hand, the focus of this course has been on shareholder wealth maximization, often expressed through the NPV criterion. One way to reconcile the two
15、 is to think of growth as an intermediate goal that leads to higher value. Alternatively, if the firm is willing to accept negative NPV projects just to grow in size, the shareholders (but not necessarily the mangers) will be worse off.,26.3 What Determines Growth?,There is a linkage between the abi
16、lity of a firm to grow and its financial policy when the firm does not issue equity. The Sustainable Growth Rate in Sales is given by:,The Sustainable Growth Rate in Sales,T = ratio of total assets to sales p = net profit margin on sales d = dividend payout ratio A good use of the sustainable growth rate is to compare a firms sustainable growth rate with their actual growth rate to determine if there is a balance between growth and profitability.,Uses of the Sustainable Growth Rate,A commerc
