İŞLETME FİNANSI I - Deneme Sınavı - 7

Option C is about the forecasts and estimations to prepare the proforma financial reports.The other ones are about the steps of preparation of a proforma balance sheet in order.

In the situations where annual business budgets are prepared, the cash inflows and outflows are estimated referring to the budgeted sales, production, cost figures.

Option E is about sales budget.

Long-term (Strategic) Financial Plans: These plans contain the envisaged long term financial activities and they figure out the effects of these activities on the financial position of the company. Although the time frame covered is 2-5 years, 5 year strategic plans which are revised as the new data arrives are used generally.

Long term financial plans are also called strategic plans because they show the long term financial plan of the firms. Short term financial plans on the other hand, are called operational plans.

The defined method is regression. It solves a linear regression and hence, forecasts the level of sales given the independent variables.

Labor hours required for production are stated in direct labor budget.

Direct materials cost is in direct materials budget and labor costs are included in direct labor budget, but the costs other than these are addressed in the manufacturing overhead budget.

Aims stated in I, II and III are related to cash budgets, but aim IV is related to direct materials cost budget.

Adjusted Net Profit Method is used in cash budgets, the other ones are used in sales budget.

Correction of Deviations is the final step of financial control process. The steps stated in choices A to D are steps in financial control but the one in E is a part of cash budget preperation.

The process of financial planning includes the following financial analysis and aspects:

• Cash Flows: The building block of financial planning is projected cash flows for future given the activity level of today and the forecasts of future. The cash flows convey the liquidity performance, flexibility and risk concepts to the financial planning as supported by the accounting data and financial reports,

• Departmental analysis: For large companies and conglomerates, the targets produced by financial planning for each individual department generated by taking into account its own investment finance and cash flow requirements serves as benchmarks of success.

• Scenario Analysis:Theflexibilityoffinancial planning by the use of the capabilities of information technology enables to realize scenario analysis to evaluate the effects of the possible financial and environmental changes on corporate activities in thefuture.

• Short and Long-term Time Frame: The financial plans can be prepared for short (less than 1 year) and long t(more than 1 year term. They can also be prepared as monthly, quarterly and semiannually, each of which are used for control purposes. In the short-term, the basic motivation is to determine the funding needs or surplus and the method to secure or invest the relevant amounts. In thelong run financial planning is used as a strategic tool inordertomaximize the return under different risk estimations.

the following operational and financial data is required for the financial planning process:

• Short and long term profit targets,

• Divisional financial reports,

• Transactions creating cash flow for the divisions and the company,

• Divisional proforma and realized budgets,

• Cost accounting data on product basis,

• Special financial analysis in relation with profitability by product, logistics costs and other expenditure,

• Analysis of security portfolio and subsidiaries,

• Labor productivity reports,

• Internal control reports

The first step of the short-term financial planning is sales forecast which is used to develop production plans.

The sales budget is the core of the overall budgeting efforts within an organization.

• Regression Method: It assumed that there exists a linear relation with sales volume as dependent variable and some predetermined economic factors as independent variables.

• Managerial Assessment Method: In many case it is not easy to determine the independent variables in a regression. In such cases managers who have insight about the dynamics in market place use their own assessments to forecast the future sales targets. Sometimes the managerial assessments are used as a contributor to the regression results.

• Special Purpose Methods: There exist three special purpose methods to analyze the determinants of sales to make more realistic sales forecasts. The first one is industry analysis in which the individual company sales forecast is based on total industry sales. In the product analysis method, the focus is on individual product demand. It is also possible for some special sectors such as component manufacturing to use the forecast of the clients’ demand forecasts and this method is named as latest use method. 

• Combined Methods: It is the most proper approach to combine two or more of the methods mentioned above in order to fully address the company specific factors such as size, structure, suppliers and seasonality etc.

Cash budget is a management plan for the most important factor of a company’s viability — its cash position.

The production volume has to be determined by taking into account the sales budget

The following forecasts and estimations should be made in order to prepare the proforma financial reports:

• Sales, direct materials, direct labor and manufacturing overhead budgets,

• The forecasted sales, management expenses budget,

• Existing funding structure,

• The ownership structure,

• The volume and amount of direct materials,

• The volume and amount of finished products,

• The existing amount of fixed assets,

• The receivables and payables,

• The sales and proceeds,

• Non operating and extraordinary expenses,

• Operating expenses,

• Net profit.

Although there are many different types and methodologies, an accepted router to establish a financial control infrastructure within a company involves the following steps:

1. Analysis of the Initial Situation: The first step is to conduct an exhaustive, reliable and detailed analysis of the financial situation of the firm in terms of cash, profitability, sales, etc.

2. Preparation of Forecasts and Simulations: On the basis of the initial situation analyzed above and the establishment of a set of parameters or indicators, a set of forecasts and simulations of different contexts and scenarios can be prepared. These simulations are immeasurably helpful in making appropriate decisions on such crucial aspects as investments, profitability, changes in production systems, etc.

3. Detection of Deviations in the Basic Financial Statements: The basic financial statements are balance sheet, the profit and loss account and the cash flow statement. The analyses and tests to determine the deviations from the budgeted figures are fundamental part of financial control, since they permit problems, errors and deviations from the ideal situation or initial objectives to be detected early.

4. Correction of Deviations: Financial control would have very little practical use if the proper decisions relating to corrective actions were not taken to get the company accounts on theright track as previously established in the organization’s general objectives.