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Lecture 48

MGMT 1 Lecture Notes - Lecture 48: Merage Family, Financial Plan, Cash Flow

Course Code
G Mclaughlin

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Paul Merage School of Business
Intro to Business Management
4 units
No Pre-reqs
Course code: 38001
tuesday/thursdays 9:30-10:50
Location:SB1 1200
Final: Thursday of finals week
Course Notes
Financial planning - analyzing short-term and long-term money flows to and from the
Overall objective is to optimize the firm’s profitability and make the best use of money.
Financial planning has three steps:
Forecasting the firm’s short-term and long-term needs.
Developing budgets to meet those needs.
Establishing financial controls to see whether the company is achieving its goals.
Forecasting Financial Needs
Short-term forecast forecast that predicts revenues, costs and expenses for a
period of one year or less.
Cash flow forecast predicts the cash inflows and outflows in future periods,
usually months or quarters.
Based on expected sales revenue and various costs and expenses incurred,
as well as when they are due for payment.
Sales forecast estimates projected sales for a period.
Long-term forecast forecast that predicts revenues, costs, and expenses for a
period longer than 1 year, and sometimes as far as 5 or 10 years into the future.
Plays a crucial part in the company’s long-term strategic plan.
Asks questions such as: what business are we in? Should we be in it five
years from now? How much money should we invest? Etc.
Gives top management some sense of income or profit potential of
different strategic plans.
Working with the Budget Process
Budget financial plan that sets forth management’s expectations and, on the
basis of those expectations, allocates the use of specific resources throughout the
Budgets depends heavily on the accuracy of the firm’s balance sheet, income
statement, statement of cash flows, and short-term and long-term forecasts.
Becomes the primary guide for the financial operations and expected financial
needs of a firm.
Several types of budgets in a firm’s financial plans:
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