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FMA-III 3 of 3: PARTS OF A FINANCIAL PLAN
Essay Instructions:
Define each part of a financial plan and discuss the importance of these components in managerial decision making.
Your response should be at least 250 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; Construct a pro forma income statement for the first year and second year for the following assumptions:
' Units of Sales in Year 1: 100,000
' Price per Unit: $10
' Variable cost per unit: 30%
' Fixed Costs: $120,000
' Income taxes: 15%
' Interest Expense: $200,000
' In year 2, Price per unit increases to $11.50, and unit of sales increases by 3%, all other assumptions remain the same.
Course Textbook
Lasher, W. R. (2011). Practical financial management (6th ed.). Mason, OH: South-Western.
î‚… Chapter 10: Capital Budgeting
Essay Sample Content Preview:
PARTS OF A FINANCIAL PLAN
Name
Institution
Instructor
Date of Submission
Financial Plan
A financial plan is a sequence of steps and targets used in the cumulative and progressive attainment designed to achieve financial targets as well as goals. A financial plan consists of parts that include market analysis, business analysis as well as projection.
The market analysis part entails details that entail a thorough research of target market by business companies. According to Chandra (2011) when starting a business, one should have a viability of services and products they are providing. Considering demand, competition, as well as pricing is a key factor in defining a market analysis. Market analysis is important in making key decisions by managers because it enables them research thus improving chances of running the business successfully.
Business analysis entails determining where revenue of products and services as well as mapping out how cash flow settles bills. This is determined by making cash flow analysis. Business analysis therefore ensures that managerial decisions made by the managers considers finding a price of goods or services to market to the consumers as well as enabling managers to know the number of sales to be made in order for the business to pay all its bills.
Projection is another part of financial plan that involves an analysis of how much money one plans to make or lose in a defined length of time. It also involves analyzing the amount of money one needs to run business operations in the same period of time. It is in this part of financial plan where one lists their projections so that they can benchmark the business` progress. Reviewing projections therefore enables company managers to account for any changes that may come along as the business progresses.
Two year pro forma income statement
Year
I
II
Unit of Sales
$ 100,000
$ 103,000
Price per unit
$ 10
$ 11.50
Variable cost per unit
30%
30%
Fixed costs
$ 120,000
$ 120,000
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