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Introduction
Financial plan should have the following criteria: Objective, strategy & operational plan must be clear Assumption that are used in the preparation of financial plans Budgets that are classified according to the type and time period Projects financing that are classified according to the type and time period Pro forma financial statement throughout the financial period
Cash Budget
Summary of receiving and payment of cash that is expected for a short period such as 6 months and 1 year Can assist the company to know the cash status to ensure that the cash level is strong and stimulating
Receiving of cash (cash inflow) : Cash sales, cash collection from debtors Payment of cash (cash outflow) : Purchase of equipments, wages, rental etc. Change in net cash : Differences between cash inflow and cash outflow Cash surplus @ additional financing requirement : To ensure either the company need to make loan or not Cash inflow > Cash outflow Surplus Cash inflow < Cash outflow Need loan
Example 9.1 :Prepare the cash budget for Nuri Company based on the following information
Actual sales for January and February Sales forecast for the months of March, April and May Cash sales are 25% and credit sales are 75%. 80% of credit sales will be collected in the next month and 20% will be collected in two months after sales The raw materials is predicted at 60% of sales and the payment will be made a month later Office and warehouse rental are RM4,500 per month
Solution
Step 1 : Prepare cash received for January May
Jan Total sales Feb Mac Apr Mei
10,000
22,200
42,950
Provide to forecast net profit that can be obtain at a specific period of time. There are 2 step in preparing a pro forma financial statement
Step 1 : Preparing Sales Forecast
Sales forecast refer to unit sales and amount sales forecasted in the future Several sources are needed to make sales forecasting
Any sales trend expected based on previous trend. If the sales increase 10% in every month, the sales forecast must increase 10% for every month Any factors that effect on the sales trend such as economic situation, inflation, product introduction and change in marketing strategy
Financial variable refer to expenditure, current assets, fixed assets, liabilities and equity Then, company must determine the effect of this increase in sales on theses financial variable For example, the labor wages will increase when the company want to increase the production level to ensure that the sales will increase
Step 1 : Prepare the sales forecast Step 2 : Determine the production schedule and requirement for materials, labor and expenditure (overhead)
Determine the total unit that will be produces Production Requirement = Expected Unit Sales + Closing Inventory Beginning Inventory Determine the production cost per unit Cost per unit = Material + Labor + Overhead Total Cost = Unit Produce x Cost Per Unit Cost of Good Sold = Sales Unit x Cost Per Unit
Calculate the closing inventory Closing Inventory = Beginning Inventory + Total Production Cost - Cost of Good Sold Admin and general expenses Interest espenses
xxx
xxxx xxx xxx xxxx xxx xxx xxx xxx xxx
xxx
Example 9.2 : Based on Nuri Company information, prepare pro forma financial statement based on the following additional information
Total fixed asset = Depreciation = Inventory at 30 April = Inventory at 31 May = Tax rate = RM300,000 10% RM20,000 RM40,000 30%
Nuri Company Pro Forma Income Statement for the month of May RM RM
Sales revenue
(-) Cost of good sold Opening inventory Purchases (60% x 85,000) Losing inventory Cost of good sold Gross Profit (-) Operating expenses 20,000 51,000 71,000 (40,000)
85,000
(31,000) 54,000
2,500
4,500 5,000 (12,000)
42,000
(12,600) 29,400