Cash Budgets & Projected Financial Statements

Question 1

Planning for a New Business

Answer 1

Focus on prepping plan
Include
- Projected Cash Budget
- Pro Forma/Projected Financial Statement.

Question 2

Planning for an Existing Business

Answer 2

Forward looking
Use
- Projected Cash Budget
- Pro Forma/Projected Financial Statement.
- To understand changes of business operation over certain period of time
- Based on number planning assumption

Question 3

Tools

Answer 3

cash budgeting

projected financial statements.

Question 4

Important Aspects of Cash Budgeting and Projected Financial Statement

Answer 4

• Begin with forecast/future sales
• Require estimates of parameters & assumptions about financial relations
• Principle assumptions – influence decisions to be made (typically set out at start of analysis
• Reasonable variations in parameters & assumptions – typically made to determine impacts of changes on financing needs & financial health

Question 5

Diagram

Answer 5

• Planning, Budgeting, Financial Projections and Controlling Process
• Generally starts with assumption
• SWOT analysis conducted – get more info (internal/external envior.)
• Missions/priorities established (@ corp/division level)
• Consolidated, Capital (invest) and Cash budget developed (@ corp level and operating budget @ division level)
• Budgets used to develop financial projection of future
• Results monitored once time passes – compare actual performance to projected.

Question 6

Relationship between Operating Budgets and Projected Financial Statements

Answer 6

Projected Financial Statements (AKA as pro-forma statements)

• predictions of a firm’s future financial statements
• purpose is to guide operations and to anticipate future financing needs
• for a quarter, a year, or many years - are associated more with long-term planning
• Long-term plans are generally set out in a firm’s business plan- projected statements are an important element of this document
• Business plan often used as supporting material for the sale of a firm’s financial assets to private investors.

Question 7

Budgeting and Financial Projection

Answer 7

• All about the process to preparing budgets and financial projections for a business
  
  • work should be done either monthly or quarterly, but can also be done at any other time for a general or specific reason
• Important that the start of this process are the sales projections!
  
  • backbone to everything else when projecting a company’s performance.
• The accuracy of the budgets and financial projections are only as good as the assumptions established throughout the projections and those start with having good, quality sales projections.
• Identifying short-term financing needs through cash flow projections - one of the most important outcomes of this process as it allows us to understand when our company may need to seek short term liquidity to smooth out seasonal dips or lows in cash flow.