Financial Planning Term Paper Example | Topics and Well Written Essays - 1250 words

Financial Planning - Term Paper ExampleUnder the traditional forecasting the frozen(p) assets are increased as a percentage of gross revenue. This can non be entirely justified. It is possible that the icy assets own by the unshakable are sufficient in supporting the projected sales level i.e. if the companionship may have an excess capacity. In such cases the amount of fixed assets go forth not motley with the sales level rather it remains unchanged. The other expenses like cost of material, any other film expense like wages etc are believably to increase as a proportion of sales only. Similarly, spontaneous liabilities like accrued expenses and accounts payable are a form of current liabilities that can be reasonably expected to vary as per the sales level. Therefore, for these items the forecast made on the basis of sales appears to be justified. The other types of liabilities like long term debt, notes payable, paid-in capital and common stock cannot be fictional to flu ctuate with the sales level. The amount of retained earnings can be assumed to be establish on the net profit margin minus any planned dividend. Hence it can be said that all the items cannot be anticipated to vary with the level of sales. Even though some items of the financial statements like accounts payable can be reasonable assumed to vary with sales others like fixed assets cannot be anticipated to vary with sales as there is a possibility of a firm having unused capacity which can take care of the forecasted sales rise (Keown, p.108). 2) a. In case of quickly rising sales the firms change target may or may not increase. In case of most of the rise being in the form of cash sales thusly the cash position will increase, however, if the same is in the form of credit sales then the cash position may not conterminously increase. b. A delay in payable payment will increase the cash position of the business. c. A more liberal credit policy will shine the cash position as this would mean extended credit period thereby blocking the investment company in sales for long periods of time. d. Holding of large livestock is likely to reduce the cash position as the company may not be able to use entire amount of inventory in its production activities. Due to this the conversion of inventory into sales will take time with an immediate impact of reduced cash position. However an exception to this will be if the company is able to plug inventory on credit. e. A rise in the depreciation on fixed assets will not have any impact on the cash position. This is because depreciation does not involve any authentic cash outflow for the business. f. Retention of higher percent of earnings would mean less cash dividend outflow. This is likely to increase the cash position of the business. 3) The recent financial crisis originated in USA and gradually spread crossways the worldwide financial markets. This squeezed the credit as the financial institutions across the globe became wary of lending. The crisis had its roots in the housing bubble when the housing prices were booming in the domestic market in US. Induced by the increased demand for housing loans a number of derivative products like securitization, credit default swaps were issued. Buoyed by the low rate of interest and poor credit appraisal even the sub-prime borrowers were given loans. All was ok but once the rate of interest started rising these borrowers started defaulting. The market participants panicked with the fall of the financial giants