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Management 0f Financial Principle & Technique

Autor:   •  April 4, 2011  •  Essay  •  1,044 Words (5 Pages)  •  1,745 Views

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Financial Forecasting

Financial forecasting is a process of assuming the future and gets prepared for it. The forecasting system provides the way for a firm to announce its goals and priorities and to ensure that they are achievable. It also assists the firm in determining the asset requirements and necessity of external financing.

For instance, sales forecasting is the core driver of the financial forecast. Since most Balance Sheet and Income Statement accounts are deeply attached to sales, the forecasting process can assist the firm in assessing the increase in Current and Fixed Assets which will be needed to support the forecasted sales level. Similarly, the external financing to pay for the forecasted increase in assets can be determined.

Purpose & Structure of budget

The budget report is composed for data purposes but it could've various purposes depending on who is reading it. For instance an executive can get an exact overview of how the business is utilizing its finances. For this reason, the report is extremely elaborated, often showing every purchase made or bill paid during each month the report is covering. This particular feature allows executives to observe which departments are expending excessively, along with which are not spending any money.

Budget reports can vary in structure and content depending on the company creating it. Common features can include graphs, tables to show the sales figures earned by the company or a similar graph that represents the spending habits in terms of expenses or fixed payments. If the income statements and receipts have played a large part of the report, include them in an appendix, so the reader can refer to them at a later date. Other features can include an introduction and a title page, if the budget report is long. Include the date and time period the budget report covers.


Budget report not only come up with information, but can also identify problems. Identifying these problems or issues allow executives to make amendments by cutting expenses and focusing on sales and revenues. For example, if a company has outstanding loans or liabilities, executives may cut back some of the expenses and use the saved funds to pay off liabilities.

Cash flow forecasting

Cash flow forecasting is another major feature of a budget report. This is produced through a systematic process of previous financial analysis and current anticipating assets. It summarizes an entity's cash

inflows and outflows in relation to financing, operating, and investing activities.

Financial Modelling

An abstract representation of a financial decision is called financial modelling. A model designed to represent


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