TOOLS OF FINANCIAL ANALYSIS AND PLANNING

Funds Analysis, Cash Flow Analysis, and Financial PlanningA Flow of Fund Statement (A Sources and Uses of Funds Statement or A Statement of Changes in Financial Position) is used by a financial manager or creditor in evaluating the uses of funds by a firm and determining how the firm finances those uses.The purpose of Cash Flow Statement is to report a firms cash inflows and outflows segregated into three categories: operating, investing, and financing activities.The preparation of Forecast Balance Sheets and Income Statements enable the financial manager to analyze the effects of various policy decisions on the future financial condition and performance of the firm.

Flow of Funds StatementA summary of a firms changes in financial position from one period to another.

Steps in preparing the statement:Determining the amount and direction of net balance sheet changes that occur between two balance sheet dates.Classifying net balance sheet changes as either sources or uses of funds.Consolidating this information in a sources and uses of funds statement format.

Flow of Funds Statement (cont.)Adjustments:Recognize Profits and DividendsRecognize Depreciation and Gross Change in Fixed Assets

Analyzing the Sources and Uses of Funds StatementExamining firms past and futures expansion plansIts impact on liquidity

Accounting Statement of Cash FlowsA summary of a firms cash receipts and cash payments during a period of time.

Cashflows regarding:Operating activitiesInvesting activitiesFinancing Activities

Cash-Flow ForecastingCash BudgetA forecast of a firms future cash flows arising from collections and disbursements, usually on a monthly basis.

Steps:Sales forecastCollections and other cash receiptsCash disbursements Production outlaysOtherNet cashflow and cash balance

Forecasting Financial StatementExpected future financial statements based on conditions that management expects to exist and actions it expects to take.

Contains:Forecast income statementForecast balance sheet forecast financial statement financial ratios

*