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• FINANCIAL PLAN

  ● A statement of what to be done in the future as far as financial goals are concerned.
• Corporate financial planning is a foundational portion of corporate planning and an important business management tool. It forms the basis for future financial decisions.
• Financial Planning Process

  • Planning that begins with long-term, or strategic, financial plans that in turn guide the formulation of short-term, or operating, plans and budgets.
• Long-term (strategic) Financial Plans

  ● Plans that lay out a company’s planned financial actions and the anticipated impact of those actions over periods ranging from 2 to 10 years.

  ● Note: all planning activities of an entity always start with the Mission, Vision, and Objectives (VMO).
• Short-term (strategic) Financial Plans

  ● Specify short-term financial actions and the anticipated impact of those actions.
• Common Financial Forecasting Tools

  ● Account Analysis (detailed)

  ● Probability (t-distribution, chi-square,

  Bernoulli, etc.)

  ● Simulation technique

  ● Sensitivity analysis (please see managerial

  accounting)

  ● Linear Programming (Graphic, Algebraic,

  Simplex)

  ● PERT-CPM

  ● Regression Analysis (least-squares regression)
• Budgeting – is the process or act of

  preparing a financial budget.

  Budget – refers to a plan which is

  expressed in a quantitative monetary value.
• Purpose of Budgeting

  ● Facilitate planning

  ● Establishing financial coordination

  ● Proper allocation of resources

  ● Improve employee morale

  ● Enhancing control mechanism
• ● Short-term – anchored on one year

  budgetary requirements

  ● Medium-term – sets the budgetary

  requirements of an entity for the next three

  or five years.

  ● Long-term – also called strategic budget

  which is anchored on the VMO.
• Fixed budget – based only on one level of

  production capacity.
• Flexible budget – shows the projected cost

  at different levels of production capacity.
• Continuous or rolling budget – continuously prepared every month by adding another month once the current

  month has passed.
• Cash budget – reflects the expected cash

  receipts from cash sales, collections, proceeds from sale of other assets and borrowings, expected disbursements on payments of OPEX, interest, taxes and loans.
• Sales budget – reflects expected number of units to be sold based on forecasts made from performance of previous years and other marketing variables.
• Production budget – shows the costs of producing the product which includes the direct materials, direct labor, and factory overhead.
• Operating budget – reflects the sales and production budgets.
• Capital budget – a long range budget that incorporates the major expenditures for plant and machineries.
• OPERATING CYCLE

  • This cycle is composed of two periods
• CASH CONVERSION CYCLE

  • Also known as the Cash Cycle
• 5 C’s of Credit Character

  ● This refers to the borrower’s identity and character and his willingness to pay his loans.

  Capacity

  ● This is establishing the income and debts that the borrower has.

  Capital

  ● This is establishing the borrower’s assets, cash, property, personal possession and investments.

  Collateral

  ● This refers to the value of the assets that the customer has and plans to use to secure the loan.

  Conditions

  ● This refers to the global and domestic macroeconomic conditions
• BONDS

  Indenture or Bond Indenture

  • The written agreement on bond issues between the issuing party and the bondholder
• Bond issuer - the debtor company

  Bondholder - the investor or creditor of the bond

  Yield - current yield or yield to maturity, or the interest
• mortgage bond - secured by a lien on specifically named property such as land, buildings, and other fixed assets specifically pledged as security
• equipment trust bond - secured by the company’s equipment
• collateral trust bonds - secured by securities invested in by the issuing company
• Straight bonds - when the entire principal matures

  at one time only.

  Serial bonds - when the principal matures in installments. Staggered payments is the effect of payment in series.
• a.Callable/ redeemable bonds - can be

  called, redeemed or retired by the issuing

  company before maturity date.

  b. Non-callable/ non-redeemable bonds -

  are not subject to calls or redemption before

  maturity date.

  c. Convertible bonds - can be exchanged for

  other securities of the company at the option of the bondholder. The owner has the option to exchange his bond for a specified number of shares of common stock, preferred stock or other types of bonds. This feature attracts investors, but these convertible bonds usually carry lower interest rates.
• Variable rate bonds - are bonds whose interest rate fluctuates and changes when the market rate change.

  Fixed-rate bonds - have rates that are fixed as stated in the bond indenture.
• Income Bonds

  ● are bonds that pay interest only when the interest only when the interest is earned by the issuing company. If the issuing company incurs a loss, it is not required to pay interest on the income bonds.
• b. Municipal Bonds

  ● are certificates of long-term indebtedness issued by towns, cities or provinces, and are secured by the taxing power of these entities.
• 1.General Obligation Bonds are those that

  are backed by the “full faith and credit” of the issuer because it is assumed that the municipality can able to raise taxes as needed

  2. Revenue Bonds are those which are repaid from the revenues generated by the project they were sold to finance

  3. Perpetual Bonds are those for which the holder cannot redeem payment. This is commonly used in public finance, where the debtor (the government) may be assumed to have permanent existence.
• OPPORTUNITY COST

  • is anything given up after choosing an option. In finance, it is the possible income from one option or investment opportunity given up.
• GOOD MONEY MANAGEMENT

  • a decision to invest either in the money market, fixed-income securities, stocks, bonds, real estate, or in small business ventures.
• Interest - is the cost of using money over

  time. It is the money that is charged or paid based on the total cumulative amount of loan.
• Compound Interest - interest added to the principal of a deposit or loan so that the added interest also earns interest then on.
• ● Nominal interest rate - commonly known as “simple interest rate” and sometimes called “annual percentage rate”. It is the interest rate paid or earned in one year

  without compounding.
• ● Effective interest rate - also known as

  “effective annual rate”. It indicates the compound interest rate paid or earned in one year. This is the true amount of interest you pay or earn in one year.
• RISK

  • is a chance or possibility of losing something or everything. It is the uncertainty of the expected outcome. It is the consequence or the stake of doing things.
• RISK - RETURN TRADEOFF

  • is the concept that explains that there is a commensurate return for every risk a business owner or investor takes and thatthe return expected is usually greater for more risk taken.
• INTEREST RATE RISK

  • It is the fluctuations in the value of an asset as the level of interest rates change.