Decisiones Financieras

Comments on Quarter 21 Results
 
Objective
 
The objective of your decisions for quarter 21 was to practice cash budgeting. A cash budget is a forecast of estimated cash receipts and disbursements for a specified period of time. It is used to plan short-term funding needs. Once the period is over, the cash flow statement lists the flows of cash into and out of the business or project.
 Each industry (and many times, each firm) has particular operation characteristics and these affect the way cash budgets are prepared. As you get to know more, not only your firm’s reports, but also the way your firm does business, it will become easier and faster to prepare the cash budget.
 
Financial Model
 
One of the most important tools that has been created for accounting and financeprofessionals is the electronic spreadsheet, Excel being the most popular. Building a financial model for your firm allows you to do in depth analysis and thus, make better decisions. It also allows you to practice your spreadsheet skills and use your accounting knowledge.
 
Another advantage of building your firm's financial model is that in future quarters you will not need to repeat the process ofcreating a new model to determine your funding needs. You should have formulas referring to the information in the most recent report (i.e.: Q20). Therefore, a simple copy/paste should update your work showing your new funding needs. Instructions for following quarters may require you to add other variables to your model. 
 
Analyzing Results
 
It was required that after all operations(including your requesting a 90-day loan or 90-day investment), you end up with a cash balance equal to a certain percentage (indicated in Footnote Eleven) of the sum of items 10, 11, and 12 from Quarter 20. For example, if the sum of these cash flows in Quarter 20 is $40,000 and 10% is required as the cash balance at the end of Quarter 21, you should have $4,000 at the end of this quarter. To get thisamount, after all your cash inflow and outflows were projected, you should have either requested a 90-day loan or invested in a 90-day CD.
 
If your cash balance is higher than this required minimum amount, it will mean that either you requested too much as a loan or did not invest enough in CDs. If it is the same as the required minimum, it could mean that either your forecast of your fundingneeds was perfect, or on the contrary that you received an emergency loan. The latter could have happened if you either borrowed an amount that was not sufficient or if you invested too much in CDs.
 
You can compare your team performance with the performance of other teams in the simulation by opening the file Per21.xls in the Class Performance area of the simulation web site. Section 19 of theClass Performance report shows the required and actual cash balances for all teams. Section 20 shows unplanned loans or investments (if the latter were allowed in the simulation). If you requested a 90-day loan, this amount will be shown in section 21. If you invested in a 90-day CD, the amount will be shown in section 23. Your cash flow forecast error is shown in section 26. Sections 32 and 37show the level of profits and profitability ratios for all firms, respectively.
 
Since there was no uncertainty regarding sales and costs (all the information needed was in your report), any error in your projected cash flow is due to an error in your financial model. This may not be a realistic assumption because you can never be sure of your sales volumes, but this exercise was made so youcould focus your attention on your financial model. Later on, this assumption will be relaxed.
 
If you had an emergency loan it will cost you 50% more in interest. It is a penalty for lack of adequate planning. If the interest rate your firm pays for a regular loan is 12%, you will pay 18% for an emergency loan. This lowers your profits, and consequently, your ROE. If you had more cash than...