BUSI 530 Chapter 18: Chapter 18
Document Summary
Planning horizon: time horizon for a financial plan, typically is 5 years but can be 10 years or more. Why to have a financial plan (3: contingency planning, to have options. Forecasted based on the inputs and the assumptions built into the plan. Planning model in which sales forecasts are the driving variables and most other variables are proportional to sales. Fixed assets increase proportionately with increases in sales: working capital increases proportionately with increases in sales. Balancing item: also known as plug, variable that adjusts to maintain the consistency of a financial plan, adjusts to make the sources of funds equal to the uses. Financial models ensure consistency between growth assumptions and financing plans, but they do not identify the best financing plan . = net assets/sales x increase in sales reinvested earnings. = (growth rate x assets) reinvested earnings.
