Business Environment and Concepts

FINANCIAL PLANNING ;
A. Financial planning involves
1. Analyzing the investment and financing alternatives
2. Forecasting the future consequences of the alternatives
3. Deciding which alternatives to undertake ,
4. Measuring subsequent performance
B. Financial planning is facilitated with a financial planning model, which generates
projected
financial statements, operating and financial budgets, and scenario analysis. C.
Developing sales forecasts. - -,..,.
1. Qualitative techniques
a. Executive opinions. '
:
b. Sales-force polling. ''
c. Customer surveys.
2. Quantitative techniques
a. Moving average—Uses average for most recent periods.
b. Exponential smoothing—Moving average with more recent sales
weighted more
heavily. c. Decomposition of time series—Extracts seasonal and cyclical factors to
arrive at
trend and then reintroduces the seasonal and cyclical factors to get forecast, d.
Regression analysis—Estimate sales based on observed relationships between sales
and one or more predictors. e. Markov techniques—Estimate sales based on
consumer behavior.
D. Budgeting
1. Master budget is made up of :' -
a. The operating budget—The budgeted income statement and supporting
schedules, b. The financial budget—The capital budget, cash budget, and the
budgeted balance sheet and statement of cash flows.
2. Flexible budget—Budget adjusted for sales volume.
3. Responsibility accounting—Allocates revenues, assets, and costs to managers
that the manager can control. !
PROBLEMS AND SOLUTIONS FINANCIAL PLANNING
1. The financial budget includes the budgeted income statement for a company.
(True or False?) _-,, ,..,.... t .,,;,. , - , -.-,.. .. . ,-. ..:,
Answer - The financial budge! includes the capital budget, and the budgeted balance
sheet and statement of cashflows. The operating budget includes the budgeted income
statement. (False)
2. The Markov technique involves forecasting sales by examining consumer
behavior. (True or False?)
Financial Planning – 47

Business Environment and Concepts

Answer - Markov techniques attempt to forecast consumer purchasing by
considering factors such as brand loyalty and brand switching behavior. (True)
3. The "y" variable in a regression equation to forecast sales would be the
variable that has found to be useful in predicting sales. (True or False?)
Answer - The "y " variable in a regression equation is the dependent variable. In a
model
'• used to predict sales, the "y" variable would be sales. The "x" variables would
be the
predictors of sales. (False) . .••-..;
48 - Financial Planning