funds analysis, cash-flow analysis, and financial planning

7/18/2019 Funds Analysis, Cash-Flow Analysis, and Financial Planning

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Summary of Previous Lecture

In our previous lecture we studied about Funds analysis and Cashflow analysis from chapter 7 and discussed the following concepts;

The difference between the flow of funds statement and thestatement of cash flows and understand the benefits of using each.

Define "funds" and identify sources and uses of funds.

Create a sources and uses of funds statement ma!e adustmentsand analy#e the final results.

Describe the purpose and content of the statement of cash flowsas well as implications that can be drawn from it.

Direct and indirect methods of $tatement of Cash Flows


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Chapter 7 %II&

Funds Analysis, Cash-FlowAnalysis, and Financial

Planning


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Learning outcomes

After todays lecture you should be able to:

'repare a cash budget from forecasts of sales receipts anddisbursements (( and !now why such a budget should be fle)ible.

Develop forecasted balance sheets and income statements.

*nderstand the importance of using probabilistic information inforecasting financial statements and evaluating a firm+s condition.


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Cash Flow Forecasting

Determine the future cash needs of the firm 'lan for the financing of these needs ,)ercise control over cash and li-uidity of the

firm

Cash /udget is a forecast of a firm0s future cashflows arising from collections and disbursements

usually on a monthly basis.

The financial manager is better able to1


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he Sales Forecast

Internal $ales Forecast

$ales representatives proect sales for theperiod in -uestion

$ales proections are screened andconsolidated for product lines.

'roduct line sales proections are consolidatedinto a single forecast.

The underlying problem is about the overloo!ingof significant trends in the economy and industry


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he Sales Forecast

,)ternal $ales Forecast

,conomists proect overall economic andbusiness trends that will affect the firm.

,)pected mar!et share is proected for currentand new product lines.

'roduct line sales proections are consolidatedinto a single forecast.


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!"s Cash Flow Forecast

2isa 3iller has finali#ed a cash flow forecastfor the first si) months of 4556. 2isa is

e)pecting 58 of monthly sales will be creditsales with 658 of credit sales collected in 95days 458 in :5 days and no bad debts.ected Cash+isbursements &housands'

D,C => F,/'urchases ? 9 ? 9@ ? :A

C$B DI$/*$,3,>T$ F '*CB$,$ >D',TI>E ,',>$,$

G558 of last month0s ? 9 ? 9@

purchasesHages paid 5 Ather e)penses paid 9A 9ATotal disbursements %purchases

and operating e)penses& ?G:9 ?G:9


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3 ' 3 =*>'urchases ? @9 ? A5 ? A6 ? @5

C$B DI$/*$,3,>T$ F

'*CB$,$ >D ',TI>E,',>$,$

G558 of last month0s ? :A ? @9 ? A5 ? A6purchases

Hages paid GGG G57 4 4ther e)penses paid 9A 9A 9A 9ATotal disbursements ?45 ?GA ?G:: ?G7A%purchases and

operating e)penses&

Schedule of Pro>ected Cash+isbursements &housands'


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Schedule of )et Cash+isbursements &housands'

A) F(! ;A$

otal disbursements for 0172 0172 03.

%urchases and o%eratinge?%enses

Ca%ital e?%enditures 6. 5. .

+ividend %ayments . .

9ncome ta?es 34 . .

otal cash disbursements 034 03.2 031


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Schedule of )et Cash+isbursements &housands'

AP$ ;A< =)

otal disbursements for 015 0177 0165%urchases and o%eratinge?%enses

Ca%ital e?%enditures . . .

+ividend %ayments . . 1.

9ncome ta?es 34 . .

otal cash disbursements 031 0177 015


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!as@et "onders !alance Sheet

/as!et Honders /alance $heet %thousands& Dec. 9G 4557

Cash and C( 0 .

Acct $ec 259nventories 77 Pre%aid(?% 4 Accuma? Pre%ay 1.

CurrentAssets 0 1,14 Fi?edAssets &BCost' 1,.2. Less:

Acc +e%r &23' )et Fi?Assets 0 6.19nvestment, L 4.#ther Assets, L 332

otal Assets 03,17

)otes Payable 0 3.

Acct Payable 5Accrued a?es 17

#ther Accrued Liab 1..Current Liab 0 4..

Long-erm +ebt 42.Shareholders (uity

Com Stoc@ &01 %ar' 3..

Add Pd in Ca%ital

63$etained (arnings 31.otal (uity 01,12

otal LiabD(uity 0 3,17


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=> F,/ 3

/eginning cash balance ? 5 ? @7 ? 9A

Total cash receipts 44@ G65 G:7

Total cash disbursements 4@6 459 4G6

>et cash flow ?%99& ?%49& ?%@G&

,nding cash balancewithout additional financing ? @7 ? 9A ?% G7&

Pro>ected )et CashFlows and Cash !alances


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' 3 =*>

/eginning cash balance ?% G7& ? G ? 6:

Total cash receipts 4@@ 499 G5

Total cash disbursements 4G G:: G6A

>et cash flow ? 9: ? :7 ? :

,nding cash balancewithout additional financing ? G ? 6: ? 4

Pro>ected )et CashFlows and Cash !alances


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$ange ofCash-Flow (stimates

,)amine factors that may influence cash

disbursements such as changes in the state of theeconomy that impact operations capitale)penditures and dividend payments.

,)amine factors that may influence cash receiptssuch as changes in the state of the economy thatinfluence consumer buying decisions and pricingstrategies.


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;anagement =ncertainty in(nding Cash !alances

()+9)E CAS8 !ALA)C(

&thousands'

anuary +istribution

P$#!A

!9L9et $alesa ? G444 Cost of

Eoods $oldb

6:@Eross 'rofit ? 9@7 $EJ,)pensesc 45A

,/IT ? G@9Interest ,)pensed 4

,/T ? G4A IncomeTa)es @5 ,T ?

7A Cash Dividendse G Increase in , ?

@@

/as!et Honders Forecasted $tatement of ,arnings %inthousands& for $i) 3onths ,nding =une 95 4556


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Basket Wonders

Common Size Income Statements


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!as@et "onders !alanceSheet &Asset Side'

a. From as$ Flo-Forecast.

b. 1##% une, 2#% /a.c. 0nv urnover * 2.+r.

d. apital expenditure of

!11#,### anddepreciation of !6,###.

A''/405'

Cash and C.,.a ? 4cct. ec.b 444

Inventoriesc

:4 'repaid ,)p

@ ccum Ta)'repay G5

Currentssets ?G54G Fi)ed ssets

%KCost& GGA5 2ess1 cc. Depr.%96:& >et Fi).

ssetsd ? 7A4 Investment 2T @5 ther ssets 2T

449 Total ssets

?459:

Forecasted /alance $heet %thousands& =une 95 4556


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!as@et "onders !alanceSheet &Liability Side'

a. 4revious balance lessamount paid do-n.

b. 1##% of unepurc$ases.

c. o net c$ange inaccruals.

d. &ecrease in unpaid-ages, salaries, etc.

e. 0ncrease in retainedearnings ('ee 7+7).

A''/405'

>otes 'ayablea ? 44:cct. 'ayableb @5

ccrued Ta)esc G: therccrued 2iab.d 45

Current 2iab. ? 9G42ong(Term Debt @95$hareholders0 ,-uityCom. $toc! %?G par& 455dd 'd in Capital 74etained ,arningse 4:@

Total ,-uity ?GGA

Total 2iabL,-uity ?459:

Forecasted /alance $heet %thousands& =une 95 4556


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'ummar'ummar

'repare a cash budget from forecasts ofsales receipts and disbursements (( and!now why such a budget should be fle)ible.

Develop forecasted balance sheets andincome statements.

*nderstand the importance of using

probabilistic information in forecastingfinancial statements and evaluating a firm+scondition.

funds analysis, cash-flow analysis, and financial planning

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