Financial Projections

Examples of Financial Projections in the following topics:

• Overview of the Role of Financial Manager

  • The financial manager is responsible for budgeting, projecting cash flows, and determining how to invest and finance projects.
  • The head of the financial operations is called the chief financial officer (CFO).
  • This involves allocating money to different projects and segments so that the business can continue operating, but the best projects get the necessary funding.
  • The manager is responsible for figuring out the financial projections for the business.
  • The financial manager is not just an expert at financial projections, s/he must also have a grasp of the accounting systems in place and the strategy of the business over the coming years .

• Ratio Analysis

  • Ratio analysis is a useful tool for benchmarking the financial and operational efficiency of a project compared with other projects.
  • In project management, a ratio analysis may be related to the efficiency of a project and how well the project managers are controlling resources.
  • Financial ratios in the corporate setting usually come from a company's balance sheet and income statement.
  • These are typically used to determine a company's financial health relative to industry benchmarks, but they can also be used to maintain financial control of specific projects by assessing their financial health.
  • Recognize the importance of ratios and ratio analysis in financial assessment and project control

• Financial and Budgetary Controls

  • Financial and budget controls help ensure project success by controlling (and giving visibility to) input resources and output returns.
  • The budget and financial plan is typically created during the initial stage of project development.
  • Some tools that project managers can use to control finances and budget include payback period and other financial forecasting calculations, and budgeting techniques, including variance analysis.
  • It is important for a project manager to conduct these financial forecasting calculations and budgeting controls to identify budgetary constraints well before costs are incurred and to secure funding from top management.
  • Use effective budgeting techniques and financial projections to maximize the potential success and control project objectives

• Advantages of the IRR Method

  • The higher a project's IRR, the more desirable it is to undertake the project.
  • Assuming all projects require the same amount of up-front investment, the project with the highest IRR would be considered the best and undertaken first.
  • Most analysts and financial managers can understand the opportunity costs of a company.
  • If the IRR exceeds this rate, then the project provides financial accretion.
  • IRR is used in many company financial profiles due its clarity for all parties.

• Valuation

  • Valuation, a goal of financial management, often relies on fundamental analysis of financial statements.
  • Financial management focuses on the practical significance of financial numbers.
  • Valuation often relies on fundamental analysis (of financial statements) of the project, business, or firm, using tools such as discounted cash flow or net present value.
  • Items that are usually valued are a financial asset or liability.
  • Valuation is, for some, one of the goals of financial management.

• The Goals of Capital Budgeting

  • It enables the actual financial operation of the business to be measured against the forecast, and it establishes the cost constraint for a project, program, or operation.
  • The real value of capital budgeting is to rank projects.
  • Most organizations have many projects that could potentially be financially rewarding.
  • Once it has been determined that a particular project has exceeded its hurdle, then it should be ranked against peer projects (e.g. - highest Profitability index to lowest Profitability index).
  • The ideal mix of those funding sources is determined by the financial managers of the firm and is related to the amount of financial risk that the corporation is willing to undertake.

• Strategic Planning

  • A financial forecast is an estimate of future financial outcomes for a company.
  • Unlike a financial plan or a budget, a financial forecast doesn't have to be used as a planning document.
  • Financial forecasting is often helped by processes of financial modeling.
  • Financial modeling is the task of building an abstract representation (a model) of a financial decision making situation.
  • This is a mathematical model designed to represent a simplified version of the performance of a financial asset or portfolio of a business, project, or any other investment.

• The Role of the Financial System

  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items.
  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items .
  • Financial markets are associated with the accelerated growth of an economy.
  • Entrepreneurship growth: Financial markets allow entrepreneurs (and established firms) to access the funds needed to invest in projects or companies.
  • Equity markets are the most closely followed of the financial markets.

• The Role of Financial Managers

  • Financial managers are responsible for the financial health of an organization.
  • Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk.
  • These projects must also be financed appropriately.
  • Management must allocate limited resources between competing opportunities (projects) in a process known as capital budgeting.
  • Making this investment decision requires estimating the value of each opportunity or project, which is a function of the size, timing and predictability of future cash flows.

• Objectives of Accounting

  • The objective of business financial reporting is to provide information that is useful for making business and economic decisions.
  • The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of business financial reporting, which is to provide information that is useful for making business and economic decisions.
  • With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
  • These include the standards, conventions, and rules that accountants follow in recording and summarizing, and in the preparation of financial statements.
  • Describe the objectives of accounting, distinguishing between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)