Business

Tema: SHORT-TERM FINANCIAL PLANNING

What is short-term financial planning?

The terms "short term" and "long term" are relative. Thus, it is difficult to put an exact definition on short-term financial planning.

However, many people use either 24 months or 36 months as the length of time at which short-term financial planning ends.

Short-term financial planning is identified byspecific strategies to achieve or help achieve goals that are to be met in the near future, typically 2 to 3 years out.
-Provides a roadmap toward achieving financial goals.
-Factors like :how much money needs to be saved, how much interest any savings need to earn, and how best to achieve both.

__Finacial Forcastin: Process of attempting to estimate a firm’s future financial requirements

Basicsteps involved in predicting financial needs:

1. Project the firm’s sales revenues and expenses over the planning period

2. Estimate the levels of investment in current and fixed assets needed to support the project sales

3. Determine the firm financing needs thought the planning period.

Sales Forecast: Projection that is derived of information from a number of sources.Sales Forecast for the coming year would reflect:

• Past trend in sales expected to carry through into new year

• Influence of events that might affect the trend

Percent of sales method:Estimating the level of an expense, asset, or liability for a future period as a percentage of the sale forecast (this percentage come from the most recent financial statement)

Spontaneousfinancing: Trade credits and other accounts payable that arise spontaneously in the firm’s day-to-day operations

Discretionary financing:Require an explicit decision on the part of the firm’s management every time found are rise.

The sustainable rate of growth (g*) represents the rate at which a firm’s sales can grow if it wants to maintain its present financial rations and does not want toresort to the sale, of new equity shares.

[pic]

• Financial concept of sustainable rate of growth: is one that pertains to the rate of growth in revenues that the firm experience without being forced to change its key financial ratios and without having to resort to the saleOf new shares of stock to finance the growth .

The percent of sales method of financial forecastingprovides reasonable estimates of a firm´s financing requirements only when asset requirements and financing sources can be accurately forecast as a constant percent of sales

Cash Budget: Represents detailed plan of furure cash flows and is composed of four elements :csh receipts, cash disbursements, net change in cash for the period, new financing needed.

Cash buget: to obtain a moreprecise estimate of the amount and timing of the firm+s future financing needs we require a cash butget ( is a simply forecast of future events.) they indicate the amount and timing of the firm´s needs for future financing.Second, they provide the basis for taking corrective action.Third, budgets provide the basis for performance evaluation and control

Tema :Financing strategy

Short terms V/Slong term

← Advantages: Flexibility ,They can be used to match the timing of a firm’s need for short term financing. The use of long term debts means borrowing the entire year instead of just the period its needed (this increases the interests),Cost Short term debts have lower interest rates

← Disadvantages: Grater risk of liquidity,These must be paid and rolled over moreoften, so the firms condition might deteriorate. Uncertainty on the interest cost for the year

Managing the working capital involves :Investment decision in current assets,Use of current liabilities

__Hedging principle: Involves Matching the cash flow-generating characteristics of an asset, with the maturity of the source of financing used to finance its acquisition.

|Temporary Investments...