The Financial Planning Process

1
The Financial Planning Process
A firms financial plan involves decisions
about

• Liquidity
• Working Capital
• Inventories
• Capital Budgeting
• Capital Structure
• Dividends

2
3 Rules of Financial Management
What are the three primary rules of
successful financial management?
3
3 Rules of Financial Management
What are the three primary rules of
successful financial management?

1. Get the cash
2. Get the cash
3. Get the cash

4
The Cash Plumbing System

Equity
LT Debt
Taxes
Dividends
5
The Cash Plumbing System

Equity
LT Debt
Taxes
Dividends
6
The Cash Plumbing System

Equity
LT Debt
Taxes
Dividends
7
The Cash Plumbing System

Equity
LT Debt
Taxes
Dividends
8
The Cash Plumbing System

Equity
LT Debt
Taxes
Dividends
9
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
Dividends
10
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
11
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
12
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
13
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
14
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
15
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Accounts Recl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
16
The Cash Plumbing System

Equity
Operating Expenses
LT Debt
Taxes
ST Debt Mktl Sec
Dividends
Accts Payl
Accounts Recl
Fixed Assets
Materials/Inventory
Sale
Labor
Finished Goods
17
Estimating Cash Flow
Since the Income Statement does not give us
the firms cash flow, how do we back it out of
the statements that are provided?
18
Statement of Cash Flows
The 3rd primary statement is an estimate of
cash flows for the company

• Cash flow from operations
• Cash flow from investing
• Cash flow from financing

19
Statement of Cash Flows
Positive cash flow comes from

• Positive Net Income less cash dividends paid
  Change in Retained Earnings (plus depreciation
  because it is a non-cash expense)
• A DECREASE in any asset (gross, not net, for
  fixed assets)
• An INCREASE in any liability or equity account
  (except retained earnings because it was included
  above)

20
Statement of Cash Flows
See the example spreadsheet for Chapter 2