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FINANCIAL PLANNING TOOLS AND

CONCEPTS
FINANCIAL PLANNING PROCESS
Forecast settings on sales, cost, expenses, and capital
expenditure

Preparation of the projected financial statements

Analysis and evaluation of the projected


financial statements

Review and evaluation of the projected financial plan


THE FORECAST!
Steps in forecasting

Step 1:Forecast the Income Statement


Step 2: Forecast the Statement of Financial
Position
Step 3: Raising the additional funds needed.
Step 4: Consider financing feedbacks
Statement of Financial Position
Income Assets
Cash P50,000
Statement
Accounts receivable 400,000
Sales P2,000,000 Inventory 750,000
Cost of Sales 1,200,000 Total Current assets 1,200,000
Fixed assets (net) 800,000
Gross Profit 800,000 Total assets P2,000,000
Operating Expenses 380,000 Liabilities and Shareholder's Equity
Earnings before Accounts payable P250,000
interest and taxes 420,000 Accrued wages 10,000
Interest Expense 70,000 Accrued taxes 20,000
Total Current liabilities 280,000
Earnings before taxes 350,000 Notes payable- bank 70,000
Taxes (35%) 122,500 Long- term debt 150,000
Earnings after taxes 227,500 Total liabilities 500,000
Ordinary shares 1,200,000
Dividends 136,500 Retained earnings 300,000
Total shareholder's equity 1,500,000
Total liabilities and equity P2,000,000
ADDITIONAL INFORMATION
The firm is expecting a 20% increase in sales next year,
and management is concerned about a company’s
need for external funds. The increase in sales is
expected to be carried out without any expansion of
fixed assets, but rather through more efficient asset
utilization in the existing store. Among the liabilities,
only current liabilities vary directly with sales.
Dividends to be paid is projected as 36% of the
earnings after tax.
 Does Mill need external funding or has a surplus of
funds?
STEP 1: FORECAST THE INCOME STATEMENT
 The projected income statement will show the following:

Sales (P2M*100% + 20%) P2,400,000

Cost of sales (P2.4M*60%) 1,440,000


Gross profit 960,000
Operating expenses
(P2.4M*19%) 456,000
Earnings before interest and
taxes 504,000
Interest expense 70,000
Earnings before taxes 434,000
Taxes (35%) 151,900
Earnings after taxes 282,100

Dividends (36%) P101,600


STEP 2: FORECAST THE FINANCIAL POSITION
 The projected financial position will show the following:
Assets
Cash (1) P60,000
Accounts receivable (2) 480,000
Inventory (3) 900,000
Total current assets 1,440,000
Fixed asset (net) (4) 800,000
Total assets P2,240,000

Liabilities and Equity


Accounts payable (5) P300,000
Accrued wages (6) 12,000
Accrued taxes (7) 24,000
Current liabilities 336,000
Notes payable- bank (4) 70,000
Long- term debt (4) 150,000
Ordinary shares (4) 1,200,000
Retained earnings (8) 480,500
Total P2,236,500
Additional Financing Required 3,500
Total P2,240,000
FORMULA METHOD
A𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐹𝑢𝑛𝑑𝑠 𝑁𝑒𝑒𝑑𝑒𝑑 = 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠 −
𝑠𝑝𝑜𝑛𝑡𝑎𝑛𝑒𝑜𝑢𝑠 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 − 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑟𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑒𝑎𝑟𝑛𝑖𝑛𝑔
Where:
𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝐼𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑝𝑟𝑒𝑠𝑒𝑛𝑡)
= 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 ∗
𝑆𝑎𝑙𝑒𝑠 (𝑝𝑟𝑒𝑠𝑒𝑛𝑡)

𝑆𝑝𝑜𝑛𝑡𝑎𝑛𝑒𝑜𝑢𝑠 𝐼𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠


𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑝𝑟𝑒𝑠𝑒𝑛𝑡
= 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 ∗
𝑆𝑎𝑙𝑒𝑠 𝑝𝑟𝑒𝑠𝑒𝑛𝑡

𝐼𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑎𝑦𝑚𝑒𝑛𝑡