You are the CEO of a company of your choosing and your firm has begun its 2016 f

Question

You are the CEO of a company of your choosing and your firm has begun its 2016 financial planning and forecasting. What are the key financial statements that you want to include in this process and why? What are the key financial ratios that will be developed and why? What key personnel and department heads will you include in this process and why? What key questions need to be answered in this process? What are some other items that should be considered in the financial planning and forecasting process?

Explanation / Answer

1. Key Financial statements that I would include in the planning and forecasting process are ;

Sales Budget- To get the details of customer and product wise sales growth expected.

Production Budget : To underastand the production requirements and any constarints related to capacity.

Capital Investment Budget - To understand the requirement of capital expenditure to support growth.

Human resource Budget-To understand the human resource requirement for the sales projceted.

Purchase Budget - To understand the total purchase requirement per period, the qty and rates considered.

Projected Income statement -To underatsnd the projceted Top line and bottom line and whether expected net income is a good return to stockholders.

Projected operating expense budget - To have the idea of change in operating expenses.

Projceted Cash flow statement -A very vital statement to understand the liquidity position of the business and need for short term of long term loans.

Projceted Balance sheet : To understand how the asset and liabilities position will look like .

Key Financial ratios to be developed;

1. Gross margin ratio- to understand how increased sales going to affect profitability.

2. Net Margin ratio- to get the idea of net margin.

3. Return to Assets : To understand if the assets utilization has improved or not.

4. Debt /Equity ratio; To understand the leverage and the risk.

5. Llquidity ratio= To understand possible liquidity position.

6. Times interest earned ratio= To understand the comfort in paying interests.

Key Personnel & Departments to be involved;

1. Sales and Planning : Managers To provide input for sales projection.

2. Engineering & Production: Managers To understand capital invetment and capacity constarints.

3. Human Resource : Manager to give projection of human capital requirement and the costs.

4. Cost centre managers to give cost centre operating budget,.

5. Top Management : For strategic, Capital investment realted inputs.

6. Finance & Accounts; ^Budget and Planning Manager, CFO , Controller to Co-ordinate the whole budgeting process and prepare the projections with inputs from all.

Key questions;

The basis of sales projections estimates , the drivers of growth , the assumptions for pricing and cost of sales, production constraints, capital investment required, payroll cost increase, operating expense change, Cash flow position and external fund required etc.

Some other items that can be considered are expected economic scenario, currency valuation expectations, any expected change in regulation , expected change in technology etc.

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