MGMT 1 Lecture Notes - Lecture 48: Merage Family, Financial Plan, Cash Flow
Course CodeMGMT 1
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Paul Merage School of Business
Intro to Business Management
Course code: 38001
Final: Thursday of finals week
❖ 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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