Under present conditions long-term financial planning covers the period from one year to three years. Long-term planning consists of developing the financial strategy of the enterprise and financial forecasting activities. The financial strategy of the enterprise is a definition of long-term goals of financial activity of the company and choosing the most effective ways to achieve them. The financial strategy must also be consistent with overall company strategy, although it also has on the overall strategy of an impact.
The base of long- term planning is forecasting, the incarnation of the company strategy.
Forecasting means studying the possible financial condition of firms in the future. The base of the forecast is a compilation and analysis of available information and then simulating of possible scenarios. Information base forecast is accounting and statistical reporting enterprise.
Unlike planning forecasting is not the task of implementing forecasts in practice, since the forecast is only possible to predict the scenario of the situation. Forecasting involves the development of alternative financial indicators and parameters. Their use in emerging and pre-predicted trends in the market helps define one of the options for the development of the financial situation of the enterprise.
Result of the long- term financial planning is to develop the three main financial documents:
forecast profit and loss account;
cash flow forecast;
forecast balance sheet.
The main aim of creating these documents is to assess the company’s financial situation at the end of the planning period.
For making projections of financial documents is important to correctly determine the amount of future sales. It is necessary for the proper organization of the production process, distribution of funds, control of inventory. Forecast sales volume gives an idea of what market share the company requires to take. Projections are based on sales data for previous periods and market research, including surveys of potential consumers, the study of trends and new trends in the market.
Forecast sales are expressed in both monetary and in physical units.
By means of the forecast profit and loss account the value of their profits in the coming period is determined, it shows the dynamics of the financial operations of the enterprise.
Forecast balance reflects a fixed, the statistical picture of the company’s financial situation.
Forecast cash flow reflects the cash flows of the current, investment and financial activities. Demarcation activities in the development of the forecast improves cash flow management.
By means of using the cash flow forecast you can more accurately assess how much cash is needed at certain times to synchronize the receipt and expenditure of funds.
After compiling this forecast a funding strategy for the company is determined. Consistently are determined the sources of long-term financing, capital structure is formed and the cost, the way is chosen to build long-term capital.
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