The strategic plan of a firm spells out its corporate objectives, corporate scope, corporate purpose and corporate strategies. The corporate purpose define the mission of the firm. Put differently, it states the raison d'etre of the firm. For example, a pharmaceutical company has express its purpose as "to provide quality healthcare for the public". The corporate scope delineates the lines of business in which the firm wishes to engage in and the geographic spread of its operations. For example, Nucor Corporation, a form listed on the New York stock exchange, has define its scope as follows: "We Arya manufacturing company e whose primary production is still products". Wilder corporate purpose and scope reflect the broad socity and nature of the firm's activities, corporate objectives spell out the specific goals shought by the firm. Some goals are stated in quantitative terms such as achieving a market share of 40% a growth rate of 18.99 percent, and the return on equity of 28%. Artigos estatal in qualitative terms such as "at any a measure of stability". Corporate strategies aur policies are the instruments for achieving corporate objectives. Assam mein follow the policy of vertical integration to achieve growth and stability.
As a key member of the top management group that formulate strategic plan, the financial manager must
1. Sensitize the strategic planning group to the financial implications of various choices,
2. Ensure that the chosen strategy plan is financially feasible,
3. Translate the strategic plan that is finally adopted usually through an iterative procedure into a long-range financial plan,
4. Co-ordinate the development of the budget which covers the first year of the long range financial plan in great detail.
What and why of financial planning
A long-term financial plan represents a blueprint of water form proposes to do in the future. Typically it covers a period of 3 to 10 years, most commonly it spans a period of 5 years. Naturally, planning over such a extended time horrors intends to be in fairly aggregative terms. While there is considerable variation in the scope, degree of formality, and level of sophistication in financial planning across firms, most corporate financial plants have certain common elements.
1. Economic assumptions: The Financial plan is based on certain assumptions about the economic environment (interest rate, inflation rate, growth rate, exchange rate, and so on).
2. Sales forecast: the sales forecast is typically the starting point of the financial forecasting exercise. Most financial variables are related to the sales figure.
3. Pro forma statements: the heart of a financial plan are the proforma profit and loss account and balance sheet.
4. Asset requirements: firms need to invest in plant and equipment and working capital. The financial plan spell out the projected capital investments and working capital requirements overtime.
5. Financing plan: suitable sources of financing have to be thought of first supporting the investment in capital expenditure and working capital. The financing plant delineates the proposed means of financing.
6. Cash budget: the cash budget shows the cash inflows and outflows expected in the budget period.
Benefits of financial planning
1. Identifies advanced actions to be taken in various areas.
2. Seeks to develop a number of options in various areas that can be exercised under different conditions.
3. Facilitates a systematic exploration of interaction between investment and financing decisions.
4. Clarifies the links between present and future decisions.
5. Forecast what is likely to happen in future and helps in avoiding surprises.
6. Ensure that the strategic plan of the firm is financially viable.
7. Provides benchmarks against which future performance may be measured.
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