Financial Projections

and Budgets
 Financial Projections
"A forecast of future revenues and
expenses for a business, organization,
or country. A financial projection will
typically take into account both internal
information such as historical income and
cost data, and estimates of development
of external market factors, providing
estimated figures in addition to projections
of the general financial conditions of the
company in the future."
 Budget
"An estimate of costs, revenues and
resources over a specified period,
reflecting a reading of financial conditions
and goals."
 Strategic Plan
grand plan of an organization
overall objectives are set and specific
programs are created in support of the
objectives.
 Elements of a Strategic Plan
1) Vision Statement
2) Mission Statement
3) Corporate Objectives
4) Corporate Strategies
5) Departmental Plans and Programs
6) Financial Forecasts and Budgets
 SWOT Analysis
If a firm wants to project an increase in sales from
P10,000,000 to P20,000,000, the most obvious
questions that managers will ask would be: "Do
we have the resources to increase our capacity
such as technology and manpower? If we don't,
are we willing to invest?" In essence, that is an
internal analysis. Questions that pertain to the
external environment would be: "What is the
economic outlook in the next 5 years? Is there
going to be an increase in the buying power of
the customers?"
Firms Capabilities = strengths and
weaknesses

Externalities = Opportunities and Threats

 Financial Forecast
every strategic plan is culminated by the
preparation of a financial plan. Financial
plan includes forecasts. A sales forecast
is the projection of sales of a product or
services expressed in monetary value,
with due consideration of both internal and
external factors.
Projected Financial
Statements
Income Statement for the Year Ending 31 Projected Income Statement
December 2017
(in millions)
Sales P 6,500 Assume the ff.:
1. Because of the growth in the
Operating Costs
market, the firm projects an increase
(excluding
P 1,500 in sales of 20%
depreciation and
2. The new machine that is to be
amortization)
acquired will improve operational
EBITDA P 5,000 efficiency, lowering the percentage of
operating costs by 2%
Depreciation 3. Depreciation expense will increase
P 100
Expense by P700 due to the new equipment
EBIT P 4,900 4. Interest expense will also increase
by 10% due to the loan for the new
Interest P 150 equipment
5. Tax is constant at 40%
EBT P 4, 750 6. No dividend payment to
stockholders
Taxes (40%) P 1,900

Net Income P 2,850


Balance Sheet (in millions)
As of 31 december 2017
Assets
Cash and Cash Equivalents
Accounts Receivable
Inventories
Other Current Assets
Total Current Assets
Pland and Equipment (Net of
Depreciation)
Other Fixed Assets
Total Assets
XYZ Company
Projected Balance Sheet
Liabilities and Equity Assume the ff.:
1.The firm will invest in
P1,100 Accounts Payable P 900 new equipment worth
Accrued Liabilities (salaries and 3.5M. depreciation on the
1,300
benefits) 300 first year will be 700,000
800 Other Current Liabilities 700 2. A/R during the normal
course of operation will
300 Total Current Liabilities 1,900 increase by 30% in
December but the firm will
3,500 Long-term Debt 800 collect 60% before the
end of the year
2,300
Notes Payable 1,300 3. CCE will increase by
P900,000 and other fixed
1,000 Total Long-Term Debt 1,100 assets by P793,000
4. A/P will decrease by
Common Stock 1,800 P578,000 while other CL
Retained Earnings 2,000
will decrease by
P500,000
Total SH Equity 3,800 5.Inventory will decrease
by 50%
P 6,800 Total Liabilities and SH Equity P6,800