Module 3 Flashcards
____ is a process that at best helps the firm avoid stumbling into the future backward
Planning
____ is very important in business.
Planning
_____ establishes guidelines for change in a firm.
Financial Planning
A lack of effective ____ is a commonly cited reason for financial distress and failure.
long-range planning
The degree of _____ the firm chooses to employ - this is the firm’s capital structure policy.
financial leverage
The degree of financial leverage the firm chooses to employ - this is the firm’s ____.
capital structure policy
The amount of cash the firm this is necessary to pay shareholders - this is the firm’s ____
dividend policy
The amount of liquidity and working capital the firm needs on an ongoing basis - this is the firm’s _____
net working capital decision
A ____ is a statement of what is to be done in the future.
financial plan
the time period on which the financial planning process focuses.
Planning horizon
the process by which smaller investment proposals of each of a firm’s operational units are added up and treated as one big project.
Aggregation
this plan would require relatively pessimistic assumptions.
A worst case
this plan would require making the most likely assumptions about the company and the economy.
A normal case
each division would be required to work out a case based on optimistic assumptions.
A best case
what are the dimensions of financial planning?
- examining interactions
- exploring options
- avoiding surprises
- ensuring feasibility and internal consistency
Most _____ require the user to specify some assumptions about the future.
financial planning models
almost all financial plans require an externally supplied ____
sales forecast
The ____ is usually the “driver”, meaning that the user of the planning model will supply this value, and most other values will be calculated based on it.
sales forecast
A financial plan will have a forecast balance sheet, income statement, and statement of cash flows. These are called ____
pro forma statements
The plan will describe projected capital spending.
asset requirements
The plan will include a section about the necessary financing arrangements.
financial requirements
The plan will have to state explicitly the economic environment in which the firm expects to reside over the life of the plan.
Economic Assumptions
The ____ is a financial planning method in which accounts are varied depending on a firm’s predicted sales level.
Percentage of Sales Approach
____ the amount of cash paid out to shareholders divided by net income.
Dividend payout ratio
the addition to retained earnings divided by net income.
plowback ratio
the sum of the ____ and ____ should always be equal to 100%.
- dividend payout ratio
- plowback ratio
A firm’s total assets divided by its sales or the amount of assets needed to generate $1 of sales.
Capital Intensity Ratio
______, projected or forecast, income statements and balance sheets
pro forma statements
