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Financial Forecasting Essay

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Below is an essay on "Financial Forecasting" from Anti Essays, your source for research papers, essays, and term paper examples.

BASIC CORPORATE FINANCE

THREE PARTS

• Financial forecasting
      o Short-run forecasting
      o General dynamics; sustainable growth
• Capital structure
      o MM
      o Static trade-off: Tax shield vs. Expected distress costs
      o Pecking order
      o An integrative approach
• Valuation
      o FCF (Free Cash Flow)
      o APV (Adjusted Present Value)
      o WACC (weighted average cost of capital)
      o Valuing companies

CONCLUSIONS

• The bulk of the value is created on the LHS by making good investment decisions
• You can destroy a lot of value by mis-managing your RHS
• Financial policy should be supporting your business strategy
• You cannot make sound financial decisions without knowing the implications for the business
• Finance is too serious to leave it to finance people
• Making sound business decisions requires valuing them
• This involves knowing the business (to make appropriate cash flow forecasts and scenario analysis, etc.)
• Valuation exercises can indicate key value levers

FINANCIAL FORECASTING

Four Steps

1. Forecast Assets
    a. Assumptions
2. Forecast Liabilities and Net Worth, leaving out the liabilities you want to remain free (e.g. Bank Debt)
    a. Assumptions
3. Use the difference as the “Plug” for the funding need (e.g. Bank Debt) and compute the implied Net Income
4. Use the implied Net Income to compute the implied Net Worth and plug back into Step 2 until you converge.

General Dynamics and Sustainable Growth

• The sustainable growth rate is g* = (1-d) x ROE
    o D = dividend
    o ROE = Return on Equity
• The sustainable growth rate g* = (1-d) x (NI/Sales) x (Sales/Assets) x (Assets/NW)
• Sustainable growth rate increases as
    o Dividends decrease (more reinvestment in the firm)
    o Profit margins increase (NI/Sales)
    o Asset turnover increases (Sales/Assets)
    o Leverage increases (Assets/NW)
• If a company grows faster than g* without...

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"Financial Forecasting". Anti Essays. 13 Dec. 2018

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Financial Forecasting. Anti Essays. Retrieved December 13, 2018, from the World Wide Web: http://cassandralynndesignllc.com/free-essays/Financial-Forecasting-74325.html