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The Financial Planning ProcessThe Financial Planning Process
LiquidityLiquidity Working CapitalWorking Capital InventoriesInventories Capital BudgetingCapital Budgeting Capital StructureCapital Structure DividendsDividends
A firm’s financial plan involves decisions about:
3 Rules of Financial Management3 Rules of Financial Management
What are the three primary rules of successful financial management?
3 Rules of Financial Management3 Rules of Financial Management
1.1. Get the cashGet the cash
2.2. Get the cashGet the cash
3.3. Get the cashGet the cash
What are the three primary rules of successful financial management?
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes
Operating
Expenses
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Materials/Inventory
Finished Goods
Accts Pay’l
Labor
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Materials/Inventory
Finished Goods
Accts Pay’l
Labor
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Materials/Inventory
Finished Goods
Accts Pay’l
Labor
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Materials/Inventory
Finished Goods
Accts Pay’l
Labor
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Finished Goods
Accounts Rec’l
Materials/Inventory
Accts Pay’l
Labor
The Cash Plumbing SystemThe Cash Plumbing System
Equity
LT Debt
Taxes ST Debt
Mkt’l Sec
Operating
Expenses
Dividends
Fixed
Assets
Finished Goods
Accounts Rec’l
Materials/Inventory
Accts Pay’l
Labor
Estimating Cash FlowEstimating Cash Flow Since the Income Statement does not
give us the firm’s cash flow, how do we back it out of the statements that are provided?
Statement of Cash FlowsStatement of Cash Flows
Cash flow from Cash flow from operationsoperations Cash flow from Cash flow from investinginvesting Cash flow from Cash flow from financingfinancing
The 3rd primary statement is an estimate of cash flows for the company:
Statement of Cash FlowsStatement of Cash Flows
Positive Net Income less cash Positive Net Income less cash dividends paid = Change in dividends paid = Change in Retained Earnings (plus Retained Earnings (plus depreciation because it is a non-depreciation because it is a non-cash expense)cash expense)
A A DECREASEDECREASE in any in any assetasset (gross, (gross, not net, for fixed assets)not net, for fixed assets)
An An INCREASEINCREASE in any in any liabilityliability or or equityequity account (except retained account (except retained earnings because it was included earnings because it was included above)above)
Positive cash flow comes from:
Statement of Cash FlowsStatement of Cash Flows
See the example spreadsheet for Chapter 2
