FIN 300 Lecture Notes - Lecture 3: Income Statement, Dividend Payout Ratio, Capital Intensity
2 Nov 2016
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Degree of financial leverage -capital structure decisions. Cash paid to shareholders -dividend policy decisions. Planning horizon -divide decisions into short-run decisions (usually next 12 months) and long-run decisions (usually 2-5 years) Aggregation -combine capital budgeting decisions into one big project. Run several scenarios where you vary the assumptions by reasonable amounts. Determine at least a worst case, normal case, and best case scenario. Forecast of key variables (sales growth, interest rates, etc. ) Economic analysis (relate to gdp growth, interest rates, employment rates, etc. ) Industry analysis (firm and competitor analysis, new product development, advertising and credit policy, production capacity) Very simple, easy to use model that can be used as the first step in the forecasting process. Assumptions are ok for an initial estimate, but should look closely at each account to see if the assumptions are reasonable. Some items tend to vary directly with sales, while others do not. If this is the case, then the profit margin is constant.
