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Financial Planning. Financial Planning Models Begin With Sales, but Where do Sales Come From?. Economy. Industry. Product. Sales. Changes in Sales Necessitate Changes in Assets and in Liabilities and Owners’ Equity. Sales. Assets. Liabilities. Owners’ Equity.

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Presentation Transcript
financial planning models begin with sales but where do sales come from
Financial Planning Models Begin With Sales, butWhere do Sales Come From?

Economy

Industry

Product

Sales

changes in sales necessitate changes in assets and in liabilities and owners equity
Changes in Sales Necessitate Changes in Assets and in Liabilities and Owners’ Equity

Sales

Assets

Liabilities

Owners’ Equity

external funds needed simplified
External Funds Needed (Simplified)

Where,

CA = Current Assets

FA = Fixed Assets

SL = Spontaneous Liabilities

S = Original Sales

g = growth rate in sales

 = net profit margin

d = dividend payout ratio

external funds needed simplified with numbers
External Funds Needed (Simplified)With Numbers
  • CA*g = $11,350*.15 = $1,702.50
  • FA*g = $20,000*.15 = $3,000.00
  • SL*g = $ 5,000*.15 = $ 750.00
  • S*(1+g)**(1-d) = $16,000*(1.15)*.289*.675 = $3,589.38
    • EFN = 1,702 + 3,000 - 750 - 3589 = 363  365
external funds and growth
External Funds and Growth

Suppose EFN = 0, what is the growth rate?

Implies that

= .0995/[1-.1595-.0995] = .1343 = 13.43%

Suppose no external funding of any kind is used. What is the growth rate?

Suppose no external equity is used, but enough debt is used to maintain the same total debt-to-total asset ratio. What growth can be sustained?

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