FIN 300 Chapter Notes - Chapter 4: Pro Forma, Profit Margin, Retained Earnings

• School: Ryerson University
• Department: Finance
• Course: FIN 300
• Professor: Laleh Samarbakhsh

Document Summary

A lack of effective long-term planning is a commonly cited reason for financial distress and failure. Financial planning establishes guidelines for change and growth in a firm: focuses on the big picture. Basic policy elements of financial planning are: the firm"s needed investment in new assets. Capital budgeting decisions: degree of financial leverage the firm chooses to employ. Capital structure policies: amount of cash the firm thinks is necessary/appropriate to pay, amount of liquidity and working capital the firm needs on an shareholders. These four areas directly affect a firm"s future profitability, its need for external financing, and its opportunities for growth. Formulates the way financial goals are to be achieved. Growth, by itself, is not an appropriate goal for the financial manager: the goal should be increasing the market value of owners". Planning horizon: the long-range time period the financial planning process focuses on, usually the next 2-5 years.