P7 Flashcards
is a commonly cited reason for
financial distress and failure.
LACK OF EFFECTIVE LONG-RANGE PLANNING
Is a means of systematically thinking about the future and anticipating possible problems before they occur.
LONG-RANGE PLANNING
Is a process that at best helps the firm avoid stumbling into the future backward.
PLANNING
- Formulates the way in which financial goals are to be achieved.
- A statement of what is to be done in the future.
- Involves making projections of sales, income, and assets based on alternative production and
marketing strategies and then deciding hot to meet the forecasted financial requirements. - This requires that decisions made far in advance of their implementation. For instance, if a firm
wants to build a factory in 2018, it might have to begin lining up contractors and financing in 2016
or even earlier.
FINANCIAL PLANNING
Usually covers the coming 12 months.
SHORT-RUN PLANNING
Takes to be the coming two to five years.
LONG-RUN PLANNING
Is the time period, this is the first dimension of the planning process that must be established.
PLANNING HORIZON
The 2nd dimension of the planning process that needs to be determined.
- Involves the determination of all of the individual projects together with the investment required
that the firm will undertake and adding up these investment proposals to determine the total
needed investment which is treated as one big project.
AGGREGATION
BENEFITS THAT CAN BE DERIVED FROM
FINANCIAL PLANNING:
- PROVIDES A RATIONAL WAY OF PLANNING OPTIONS OR ALTERNATIVES.
- INTERACTIONS OR LINKAGES BETWEEN INVESTMENT PROPOSALS ARE
CAREFULLY EXAMINED. - POSSIBLE PROBLEMS RELATED TO THE PROPOSAL PROJECTS ARE
IDENTIFIED ACTIONS TO ADDRESS THEM ARE STUDIED. - FEASIBILITY AND INTERNAL CONSISTENCY ARE ENSURED.
- MANAGERS ARE FORCED TO THINK ABOUT GOALS AND ESTABLISH
PRIORITIES.
