Tools of Financial Analysis and Planning

Financial analysis is considered as the starting point for making plans before the forecasting and planning procedures. Financial analysis is a procedure to understand a firm’s strength and weaknesses by creating a relationship between the items included in the balance sheet and profit and loss of the account. The firm’s plans for the future should be arranged keeping in view the financial strength and weaknesses of the firm.

 

Ø  Tools For Financial Analysis:

v  Ratio Analysis which is described as the relationship between two or more things. It basically indicates quotient of two mathematical expressions.

v  Financial Statement and Cash Flow Analysis

 

Ø  User of Financial Statements:

v  Trade creditors

v  Lenders

v  Investors

v  Management

 Financial planning describes the growth of the firm and its performance, investments and funds required during a certain period of time; usually it is three to five years. This includes the preparation of projected profit or loss in account, balance sheet and cash flow statement. One of important advantage of a financial planning is that it helps the finance manager to rotate the cash flow which is considered to be major part of his job.

Financial Forecasting and Financial Modeling:

Financial forecasting is an integral part of financial planning which uses past data to approximate the future requirements in terms of finance.

Financial model helps in evaluating and understating the consequences of the alternative financial strategies.

Components of Financial planning model:

• Inputs
•  Model
• Output

Financial planning involves the questions of a firm’s long term growth and profitability, investment and financing decisions.

 

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