Profit planning, Planning - Financial decisions in business management

Profit planning


One of the most important functions of finance is planning. Predict the future development of markets and technologies, formulate possible variants of the development of events, express all this in money, analyze the consequences of possible actions of the firm in different scenarios - all these are the duties of financiers preparing the basis for financial decisions.

This chapter presents the basis for planning at the firm level. The main thing here is profit planning. The main techniques will be considered: break-even analysis, profit-volume analysis, margin analysis and valuation of firm's shares based on the forecast of future earnings per share.

Planning is carried out at all levels of management and is carried out in stages. Two important spheres are analyzed.

1. External factors. The beginning of everything in a market economy is the analysis of the environment in which the firm lives, works and to which it has to adapt. Sometimes a firm manages to form its environment, but more often than not it is a dynamic adaptation to the development of events that need to be foreseen, but it is unlikely to affect the development of these events. Will the economy of the country go up, on a decline or in the foreseeable future stagnation, stagnation? How will our industry and region develop? What does the future of the market look like? Do not see the emergence of new competitors, new substitutes for our products, new technologies? What will be the dynamics of interest rates, inflation?

2. Internal factors. Some factors a firm can control. These are mainly factors inside the firm itself. What level of liquidity is appropriate? Which stocks are optimal? What is the composition of assets? What is the level of borrowing?

The most developed methods of short-term and medium-term planning for the development of domestic response to the market. These are:

- making decisions about the composition and quantity of products produced for the predicted demand. After a careful analysis of external factors, the firm is able to decide what and in what quantities it makes sense to produce. What production to close? To what level of sales to strive for? With this strategically important group of questions, actual planning begins after forecasting;

- decisions about the level of future costs and the cost of products offered to the forecasted market. Buying new equipment will increase fixed costs, but can outrun variable costs ahead of schedule. To buy equipment or not? Changing the schedule of purchases and the level of stocks can reduce production and administrative costs. Expensive raw materials can be replaced by cheaper ones. You can increase or decrease product quality and save on it;

- decisions on sources of financing. There are many opportunities to attract other people's money to the firm. And a favorable growing market, and an unfavorable one may require the funds to maneuver. Where and how to obtain funds at affordable prices? Where is it productive and safe to invest temporarily free or accumulated funds?

All these are internal factors that are more or less influenced by the management of the firm.

As a result of planning, a firm can:

- realize problems and identify opportunities;

- formulate a family of agreed goals at different levels;

- coordinate actions;

- to clarify the expedient control;

- set standards and performance evaluation criteria.

The main result of financial planning is the firm's budget for the planned period. A good budget looks logical, simple and clear. This is the plan expressed in rubles. The very process of financial planning is sometimes called budgeting ( budgeting ). The financial plan also includes the relevant budget and budget supporting pro forma statements: balances for various dates, projections of profits for various periods, project flows of funds, project estimates, etc.

A special place in the composition of financial plans is occupied by analytical documents of settlement type, which prove the feasibility and reality of the most important figures of the budget.

thematic pictures

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)