© 2012 McGraw-Hill Ryerson Limited Chapter 19 -1

The Financial Planning process:

◦ Analyzing the investment and financing choices open to a firm

◦ Projecting the future consequences of current decisions

◦ Deciding which alternatives to undertake

◦ Measuring subsequent performance against the goals set forth in the financial plan

Planning horizon: Time horizon for a financial plan

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© 2012 McGraw-Hill Ryerson Limited Chapter 19 -2

Departments are often asked to submit 3 alternatives◦ Optimistic case = best case◦ Expected case = normal growth◦ Pessimistic case = retrenchment

Financial plans help managers ensure that their financing strategies are consistent with their capital budgets

They highlight the financing decisions necessary to support the firm’s production and investment goals

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© 2012 McGraw-Hill Ryerson Limited Chapter 19 -3

Why build financial plans?

Contingency Planning: Companies develop a number of ways of asking “what if” questions

Considering Options: Planners need to recommend entering markets sometimes for “strategic” reasons

Forcing Consistency: Plans draw out the connections between the plans for growth and financing requirements

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