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FIN 401 Discussion Question




Question;Which;step(s) is (are) the most critical? Explain your rationale.;The Financial Plan;The financial planning process generally involves five steps.;1.The firm forecasts financial;statements under alternative versions of the operating plan in order to analyze the effects of different operating;procedures on projected profits and financial ratios.;2.Next, it determines the amount;of capital that will be needed to support the plan, that is, it finds out how much the new assets needed to achieve;the target sales will cost, since without adequate capital, the plan obviously;cannot be realized.;3.Then the firm forecasts the;funds that will be generated internally. If internal funds are insufficient to cover the required new investment, then it;must identify sources from which the required external capital can be raised, taking;account of any constraints due to bond covenants that limit its debt ratio and other;financial ratios.;Market conditions must also be recognized. For example, in 2009;banks reduced many firms?lines of credit and also increased the fees and;interest rates on such lines. This surprised firms that were not keeping up with conditions in;financial markets.;4.The firm establishes a;performance-based management compensation system that rewards employees for creating shareholder wealth. The emphasis;here should be on the long run, not on profits over the next few quarters or even;years. A failure in this area was perhaps the most important factor leading to the;worldwide financial and economic crisis that hit in 2008 and 2009.;5.Finally, management must;monitor operations after implementing the plan to spot any deviations and then take corrective actions. Computer;software is helping greatly here, and it?s changing the way companies do;business. In particular, corporate information systems are reducing the need for?middle;managers? and flattening;firms?management structures.


Paper#49245 | Written in 18-Jul-2015

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