Topic:

THE CONCEPTS,
SOURCES AND
PLANNING WORK IN
OPERATION FOR
BUSINESSES
English IV
Teacher: Delia Vallesteros

UNIVERSIDAD METROPOLITANA DE
EDUCACIN, CIENCIA Y TECNOLOGA

Final Exam English IV

UNIVERSIDAD METROPOLITANA DE EDUCACIN,

CIENCIA Y TECNOLOGA
Names:

PIN:

Jorge J. Salas A.

4-748-2173

Javier F. Coto B.
Aileen E.
Caballero E.
Adam Gil

8-1017-85
1-732-240
2-733-653

Theme:
The concepts, sources and planning work in operation for
businesses
Teacher:
Delia Ballesteros

Date:
29 de Abril de 2015

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Final Exam English IV

INTRODUCTION

Finances are rooted in the completion of a business transaction with

the transfer of financial resources. It receives contributions mainly
from disciplines such as economics, management, accounting and
quantitative methods of analysis. Finance can be defined as "the art
of managing money," while financial management "refers to the tasks
of the financial manager". Finance contains a set of principles,
techniques and procedures, which are used to transform the
information reflected in the financial statements of a company,
processed information usable for decision-making.
Meanwhile financial planning and control processes are closely
related to financial management and strategic planning. Planning and
financial
standards

control
and

involving
the

employment

development

of

projections
feedback

are

based

process

and

adjustment to increase performance. The results obtained from the

screening of all these elements of costs and expenses are reflected in
the state budget or pro forma results. Meanwhile, sales estimates
allow us to consider the various types of investments required to
develop products. These investments, plus the previous year's
balance sheet, provide the data necessary to develop the assets
column of the balance sheet.

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Final Exam English IV

These assets must be financed, but also requires an analysis of cash

flow.The cash flow of the company plays an important role because,
when net positive indicate that the company has sufficient financing.
If not, it would warrant additional funding. This means that cash flow
is the essential element for financial forecasts because he based on
the projections made in order to achieve the goal or ultimate goal of
every business: profitability. Matter Planning and Financial Control,
aims to develop basic concepts of finance, financial planning,
financial analysis, working capital funds and securities, credit and
collections policy and funding in the short and medium term bank
loans, financing of goods and investment analysis, and applications to
practical problems that arise in organizations and in real life.
Similarly, in today's global world should also consider the strategic
and economic trends that the company must meet to achieve
sustainability in the long term. It thus becoming a strategic analysis
because besides identifying the strengths and weaknesses of the
business, is necessary to know the impact of environmental factors to
differentiate their business opportunities and threats that might affect
it.
Also the interpretation of financial data is extremely important for
each of the activities carried out within the company, as by this
executive is worth to create different outsourcing policies and may
also focus on solving specific problems facing the company, such as,
for example, accounts receivable or accounts payable; molded while
credit policies to customers depending on their rotation, it can also be
a focal point when used as a tool for rotating obsolete inventories.
Through the interpretation of the data presented in the financial
statements managers,

customers,

employees and suppliers of

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Final Exam English IV

financing, you can tell the company performance shown in the

market; It is taken as one of the primary tools of the company.
Financial Planning and Control provides relevant to an organization
considered as key elements in the ongoing monitoring of its
management aspects and goals to achieve. Must be analyzed,
similarly, the strategic planning process and its impact on the
achievement of organizational objectives; learn to design a dashboard
that allows to monitor and measure the progress of these strategic
objectives, and control the cost of financing, through the evaluation of
financing options and to create value in an organization, through
determination the optimal financing structure of a company; and
valuing companies under the method of the present value of
projected free cash flows.
In conclusion, the primary objective Planning and Financial Control
aims is to help company executives to determine whether decisions
about financing were the most appropriate, and thus determine the
future of investments in the organization; however, there are other
intrinsic or extrinsic elements are equally interested in understanding
and interpreting these financial data in order to determine the
situation in which the company is located.

GENERAL OBJETIVES

Expose techniques and tools on Financial Planning and Control, as

necessary for effective and timely decision making strategic element,
and to view it as a business and the impact of this activity in the
company is administered in order to achieve their goals and
objectives from the holistic point of view.

SPECIFIC OBJECTIVES

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Final Exam English IV

Establish the nature of Planning and Financial Control and objectives,

analyzing the mutual interrelations between investment alternatives
and financing of the company as well as the effects of the Planning
and Financial Control in the management, through control of
revenues, cash flow and other financial statements.
Analyze and define what the essential information to help businesses
make decisions about the appropriate economic and financial
performance. Study the financial strategy of the company and its
connection with the strategies set out in this comprehensive plans.
Analyze comparisons subsequent behavior of financial planning, with
the objectives set initially in the financial plan, using the main
indicators that

form

the

basis

for

applying

techniques of

financial

control in the

company.

the

THE CONCEPTS, SOURCES AND PLANNING WORK

I N O P E R AT I O N F O R B U S I N E SS E S

Planning "is decided by rationality and intentionality against random /

uncertainty" is "make decisions in advance about future courses of
6

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Final Exam English IV

action (Anticipating React Vs)," you can also say that it is "the
systematic development of programs geared towards meeting predefined objectives, through a process of analysis, evaluation and
selection of the different opportunities that have been predicted ".For
his part, control is an activity that is part of everyday human life,
consciously or not. It is a function that is performed by previously
established parameters, and the control system is the result of
planning, therefore, points to the future.
Control refers to the use of records and reports to compare what has
been achieved as scheduled, therefore control is the set of actions
taken in order that the activities are carried out according to plan.
The management includes the process of skills, knowledge and
resources to carry out the solution of tasks efficiently, while corporate
governance is a term used to describe the set of techniques and
experience of the organization, processes such as planning, efficient
management and control of operations and other activities of the
organization.
The financial planning process presents techniques and tools for
effective and timely decision-making, to visualize as a business and
the impact of this activity in the company, in order to achieve its
goals and objectives is given from the point holistic view. According to
Weston and Brigham 1992 (Fundamentals of Financial Management),
the financial planning process "involves making projections of sales,
income and assets based alternative production and marketing
strategies as well as the determination of the resources needed to
achieve those projections "
Brealey / Myers, 1992 (Principles of Corporate Finance) on financial
planning, states that a "process of analysis of the mutual influences
between investment alternatives and financing; projection of future
6

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Final Exam English IV

consequences of present decisions, the decision to adopt alternatives

and finally the subsequent behavior compared with the objectives set
in the business plan. "In conclusion the process of financial planning
is a technique that combines a set of methods, tools and targets, in
order to establish an economic and financial forecasts and achieve
business goals, taking into account the means that have and those
that required to achieve it.

FINANCIAL PLANS: CONCEPTS

Clearly, a company that does not prepare financial plans can not
maintain a position of progress and profitability. A successful
company requires: common sense, good judgment and experience,
but a real business management requires setting targets and
conducting operations so that the achievement of these objectives is
ensured. Financial managers should consider the planning and control
systems, considering the relationship between sales volume and
profitability under different operating conditions, allowing them to
predict the level of operations, financing needs and profitability as
well as the needs of funds the company or cash budget.
Financial planning is the projection of sales, income and assets based
alternative production and marketing strategies as well as the
determination

of

the

resources

needed

to

achieve

these

projections.The preparation of financial analysis begins with forecasts

projected sales revenue and production costs, a budget is a plan that
sets out the projected expenses and explains where obtained and the
production budget presents a detailed analysis of investments They
will be required in materials, labor and equipment, to support the
level of sales forecast.

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Final Exam English IV

During the planning process combine each projected operating

budgets of different levels and with this data the cash flows of the
company will be included in the cash budget. After being identified
costs and revenue development the income statement and balance
sheet and projected pro forma for the company, which are compared
to the actual financial statements, helping to identify and explain the
reasons for the deviations, correct the problems operating and
adjusting the budget projections for the rest period.

SOURCES OF FUNDS FOR BUSINESS

All type of business need fund for different purposes. Its mean that
each business no matter, its purpose, need funding. Why?, because
Financing is needed to start a business and ramp it up to profitability.
There are several sources to consider when looking for start-up
financing. But first you need to consider how much money you need
and when you will need it. The financial needs of a business will vary
according to the type and size of the business. For example,
processing businesses are usually capital intensive, requiring large
amounts of capital. Retail businesses usually require less capital.
You can divide the sources of funds for business in:
Short Term financing for current assets: A short term asset is an asset
that is to be sold, converted to cash, or liquidated to pay for liabilities
within one year. In the rare cases where the operating cycle of a
business is longer than one year (such as in the lumber industry), the
applicable period is the operating cycle of the business, rather than
one year. An operating cycle is the time period from when materials
are acquired for production or resale to the point when cash is
received from customers in payment for those materials or the
products from which they are derived.
6

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Final Exam English IV

All of the following are typically considered to be short term

asset:
Cash and cash equivalents: it is the most liquid asset, which includes
currency, deposit accounts, and negotiable instruments (e.g., money
orders, checks, bank drafts). Marketable securities, Prepaid expenses,
Inventory of all types (raw materials, work-in-process, and finished
goods). Long term financing for current assets:

Often referred to

simply as "investments". Long-term investments are to be held for

many years and are not intended to be disposed of in the near future.
This group usually consists of three types of investments:

Investments in securities such as bonds, common stock, or long-

term notes.
Investments in fixed assets not used in operations (e.g., land held

for sale).
Investments in special funds (e.g. sinking funds or pension funds).

Long term financing for fixing assets

Also referred to as PPE (property, plant, and equipment), these are
purchased for continued and long-term use in earning profit in a
business. This group includes as an assetland, buildings, machinery,
furniture, tools, IT equipment, laptops, and certain wasting resources,
timberland and minerals. They are written off against profits over
their anticipated life by charging depreciation expenses (with
exception of land assets). Accumulated depreciation is shown in the
face of the balance sheet or in the notes. An asset is an important
factor in a balance sheet.
EQUITY VERSUS DEBT FINANCING
Debt financing means borrowing money and not giving up ownership.
Debt financing often comes with strict conditions or covenants in
6

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Final Exam English IV

addition to having to pay interest and principal at specified dates.

Failure

to

meet

the

debt

requirements

will

result

in

severe

consequences. The interest on debt is a deductible expense when

computing taxable income. This means that the effective interest cost
is less than the stated interest if the company is profitable. Adding
too much debt will increase the company's future cost of borrowing
money and it adds risk for the company.
The Basics of Equity Financing
Equity financing refers to raising funds for business use by trading
complete or partial ownership of the company's equity for money or
other assets. In financing corporations, this is most commonly done
by selling either common stock, preferred stock, or some combination
of these. Where a proprietorship may be funded entirely by its owner
or with money that the owner receives from family, friends, or
venture capitalists, corporations will be funded by stockholders who
may include individuals, venture capitalists, or institutional investors.
DEBT VS. EQUITY FINANCING: WHICH IS THE BEST WAY FOR
YOUR BUSINESS TO ACCESS CAPITAL?
Deciding between equity financing and taking on a loan for your
business is a challenge for all small business owners when they need
capital to expand a business. Should you go to a bank and apply for a
business loan? Or should you look for an investor? Consider the
advantages and disadvantages of each to determine which type of
financing is best for your business:
Equity financing
Having an investor write you a check may seem like the perfect
answer if you want to expand your business but don't want to take on
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Final Exam English IV

debt. After all, it's money without the hassle of repayment or interest.
But the dollars come with huge strings attached: You must share the
profits with the venture capitalist or angel investor.
Advantages to equity financing

It's less risky than a loan because you don't have to pay it back,

and it's a good option if you can't afford to take on debt.

You tap into the investor's network, which may add more credibility

to your business.
Investors take a long-term view, and most don't expect a return on

their investment immediately.

You won't have to channel profits into loan repayment.
You'll have more cash on hand for expanding the business.
There's no requirement to pay back the investment if the business
fails.
Disadvantages to equity financing

It may require returns that could be more than the rate you would

pay for a bank loan.

The investor will require some ownership of your company and a
percentage of the profits. You may not want to give up this kind of

control.
You will have to consult with investors before making big (or even

routine) decisions -- and you may disagree with your investors.

In the case of irreconcilable disagreements with investors, you may
need to cash in your portion of the business and allow the investors

to run the company without you.

It takes time and effort to find the right investor for your company.

Debt financing
The business relationship with a bank that loans you money is very
different from a loan from an investor -- and requires no need to give

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Final Exam English IV

up a part of your company. But if you take on too much debt, it's a
move that can stifle growth.
Advantages to debt financing

The bank or lending institution (such as the Small Business

Administration) has no say in the way you run your company and

does not have any ownership in your business.

The business relationship ends once the money is paid back.
The interest on the loan is tax deductible.
Loans can be short term or long term.
Principal and interest are known figures you can plan in a budget

(provided that you don't take a variable rate loan).

Disadvantages to debt financing:
Money must paid back within a fixed amount of time.
If you carry too much debt you will be seen as "high risk" by
potential investors whichwill limit your ability to raise capital by

equity financing in the future.

Debt financing can leave the business vulnerable during hard times
when sales take a dip.

Trade credit is the credit extended by one trader to another for the
purchase of goods and services. Trade credit facilitates the purchase
of supplies without immediate payment. Trade credit is commonly
used by business organizations as a source of short-term financing. It
is granted to those customers who have reasonable amount of
financial standing and goodwill. There are many forms of trade credit
in common use. Various industries use various specialized forms.
They all have, in common, the collaboration of businesses to make
efficient use of capital to accomplish various business objectives.
A personal loan is a contract by which the lender advances a sum of
money (principal) to another person named borrower, with the
obligation to return the principal plus interest agreed and paid about
6

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Final Exam English IV

the costs of the operation. Credit institutions offer countless personal

loans, also called consumer loans, with different trade names (car
loans, holiday loans, wedding loans ...), but with slight variations are
virtually all the same.
Type of interest
The interest rate is the price that the bank will charge for lending you
the money you requested. Before you decide, compare different
offers, but not only set the nominal interest rate, but the APR (more
accurate if one examines loans with repayment period).
Purpose, amount and term
The duration of a personal loan should not be longer than the life of
the thing that is funding. Financial institutions also look for coherence
between the purpose, the amount and term of the loan requested.
That is, they will not grant him 5,000 for the purchase of a washing
machine. A personal loan should go to finance a consumer product or
service in particular and entities that want to avoid general use to
remedy liquidity problems of customers. Therefore it is usually
necessary to file a pro forma invoice or budget. Even mediate entities
require payment to

ensure

that

money

targeted

at

indicated

is

actually
by

the

the
length

client.

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Final Exam English IV

SHORT-TERM DEBT FINANCING

As is obvious in the name, short term debt financing is a form of
financing involving financial obligations that must be fulfilled usually
within a year to two at most. It is more often used for working capital
requirements, or day-to-day operations of the business. By the same
token, businesses with cyclical operating conditions (for e.g. retailers)
or those engaged in international trade will usually obtain financing
through short-term debt. There are 4 main types of short-term debt
financing options:
Overdraft
Overdraft is an instant extension of credit from a lending institution.
When a company has an overdraft arrangement with a bank, it can
draw down or transmit cash from its account beyond the available
balance. It is also revolving in nature; does not have a fixed
repayment period. The amount of credit will depend on the overdraft
limit negotiated with the bank. (The advantage of an overdraft
arrangement is that the company does not have to ensure that
sufficient cash is always available for operating activities such as
stock turnover or payment to creditors in the short term).
Letter of Credit
Letter of Credit is a letter from a bank guaranteeing a buyer's
payment to a seller, that a seller will receive the amount within the
credit period. The advantage of having such an arrangement with a
bank is that it enables a company to negotiate better credit terms
with suppliers.
Short-Term Loan

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Final Exam English IV

Short-term loan is, as the name suggests, a loan that must be repaid
within a year or less, with interest. It is not revolving in nature; has a
fixed repayment period. Companies will usually find this form of debt
financing useful if liquidity is a concern, in particular short-term
working capital requirements (For e.g., to purchase stocks or to pay
creditors).
Bill of Exchange
Bill of exchange is a document that binds one party to pay a fixed
sum of money to another party at a specified future date. It is often
used in international trade. An exporter can grant credit to an
importer for goods shipped, by drawing a bill of exchange to the same
amount and credit period.
Advantages
Short term debt financing is a source of 'quick' liquidity for the
business, in particular SMEs, who do not have large pool of reserve
funds for emergency uses. Small enterprises are more prone to short
term shocks from their operating environment such as a large debtor
declaring bankrupt, or an abruptly ceased partnership with a major
supplier.
Hence, short term debt financing provides almost immediate funds to
tide over such difficult situations that could otherwise impact the
going concern of SMEs.Short term debt financing is usually easier to
negotiate (compared to long term debts and equity financing), as the
financier faces relatively lower credit risk. Due to the ease of
negotiation, short term debt financing can be used to free up funds in
the business for good investment opportunities that would otherwise
have been foregone.

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Final Exam English IV

Long-Term Debt Financing

In contrast to short-term borrowings, long-term debt is used to
finance business investments that have longer payback periods. For
example, the purchases of machinery, which may help the company,
produce goods over a 5-year period. There are 2 main types of long
term debt financing options:

Term Loan
Basically, term loan is a loan with a repayment period of more than
one year. It is usually taken by companies with longer investment or
payback horizons, such as building of a new factory or purchase of
new production equipment. A bank term loan is usually repaid via
periodic instalments. Mortgage is basically a long-term loan, secured
by a collateral of some specified real estate property. The loan is
normally amortised and the borrower is obligated to make a periodic
instalments to repay the loan. Failing which, the lender can enforce its
rights to possess the mortgaged property.
Leasing
Leasing, in general, allows a company use of an asset without having
to pay the full amount upfront. A leasing agreement is drawn up with
the lessee agreeing to pay periodic rental payments in exchange for
the use of a capital asset. It is in effect a rental agreement, apart
from a clause, which allows the lessee to own, or to buy over the
machine at a reduced rate, at the end of the lease agreement.
Disadvantages

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Final Exam English IV

Long term debt is often costly to service (interest charges are

higher).
Long term debt financiers usually demand a great amount of

information from the company to perform its credit evaluation.

Start-ups usually find it more difficult to obtain long term debt
financing, or if they do, at unfavorable terms, as they have almost

no proven track record, low cash flow, and small asset base.
Long-term debt financing contracts normally contain a lot of
restrictive clauses and covenants, including the scope of business
operations that the company is allowed to engage in, capital and
management structure limitations, etc.

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Final Exam English IV

C O NC LU S I O N

Financial Planning involves a series of tools that will allow analysis

based on its observations and not only anticipate the likely future of a
company, but also set the primary objectives and goals. There is no
perfect plan, but you can do one probable and possible alternative
scenarios, which can be adjusted over time to try to get the
best.Meanwhile, the financial statements are documents that provide
information for decision-making in safeguarding the interests of the
company, in this sense, the accuracy and truthfulness of the
information that may contain these states is important.
The pro forma statements (projected) show the revenues and costs
expected in the future as well as the expected financial position, that
is, assets, liabilities and stockholders' equity at the end of the
forecast period, while the cash flow is show movement Cash. By
financial statements owners, shareholders or board can obtain
information about the financial position of a company as well as make
use of certain tools of financial forecasting, to study, analyze what
has been done and what you expect or projects perform in the future.
The capital structure provides a combination of own and other
financial resources and financing this capital in the short and long
term, which is intended for the purchase of assets the company
needs to fulfill its objectives. Moreover, the employer or manager who
will have the responsibility to make funding decisions that the
company needs, you must consider the types of funding deemed
necessary, and when you choose, you must do that which represents
more economy the company, this because there are many sources
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that the environment offers both internal and external and selecting
the most appropriate to take as a basis the risk that the employer is
willing to take.
Additionally, the control is a very important element in any
organization, it is the one that allows to evaluate the results and
whether they are adequate to plans and objectives to be achieved.
Only through this function, you can specify the errors, identify those
responsible and correct the flaws, so that the organization is aimed
correctly.
The control should be at any level of the organization, thus ensuring
that the same objectives are met. But we must clarify that the control
should not only be at the end of the administrative process, but
instead, should be made permanent, so that in this way, are resolved
effectively and in the shortest time possible all deviations present.
Some key elements to carry out financial control in a corporate entity,
are based on the balance sheet, income statement, cash flow and
statement of source and application of funds.
Financial analysis with the reality of the situation and behavior of an
entity is evaluated beyond the purely accounting and financial laws,
and this has relative character, because there are not two equal
companies

or

activities,

either

in

size,

each

one

has

the

characteristics that distinguish it in a positive and can not be

relatively important for others. The use of accounting information for
planning and control purposes is a great need for executive
procedure. This information usually shows weaknesses that must be
recognized for corrective actions, and the strengths that must be
addressed for use as enabling forces in the management activity.

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Final Exam English IV

Although the financial statements represent a record of the past, his

study to define guidelines for future action. It is undeniable that the
decision depends heavily on the possibility of the occurrence of
certain

future

events,

which

can

be

revealed

by

correct

interpretation of the financial statements provides accounting. The

application of the method for analysis demonstrates the importance
of using these tools for deep knowledge of the financial situation and
subsequent decisions, as well as the determination of costs is an
important part to achieve success in any business. With it you can
know in time if the price at which they sell what occurs in the
company (or service) can achieve profit after covering all costs and
operating expenses of the company.
Business competitiveness has increased and profitability depends on
operational

efficiency,

so

are

currently

planning

series

of

restructurings and business arrangements to reduce costs, reduce

their points balance to minimize losses and maximize profits, thus
improving profitability. Financial managers should consider the
planning and control systems, considering the relationship between
sales volume and profitability under different operating conditions,
allowing them to predict the level of operations, financing needs and
profitability as well as the needs of funds the company or cash
budget.
Further, looking for other conclusions can say:
Financial planning is the projection of sales, income and assets based
alternative production and marketing strategies as well as the
determination of the resources needed to achieve these projections.
Financial control is the implementation phase in which financial plans
are implemented, monitoring is the process of feedback and

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adjustment required to ensure that plans are followed and to modify

existing plans due to unforeseen changes.
The preparation of financial analysis begins with forecasts projected
sales revenue and production costs, a budget is a plan that sets out
the projected expenses and explains where obtained and the
production budget presents a detailed analysis of investments They
will be required in materials, labor and equipment, to support the
level of sales forecast. During the planning process combine each
projected operating budgets of different levels and with this data the
cash flows of the company will be included in the cash budget.
After being identified costs and revenue development the income
statement and balance sheet and projected pro forma for the
company, which are compared to the actual financial statements,
helping to identify and explain the reasons for the deviations, correct
the problems operating and adjusting the budget projections for the
rest period.

Lic. en Banca y Finanzas