FINANCIAL MANAGEMENT

Being the Finance Manager of a company how will you make a financial forecasting?


Finance is one of the basic foundations of all kinds of economic activities and it is the lifeblood of a Business Enterprise. Financial forecasting is very important in the running of a Business Enterprise. It is the duty of Finance Manager to make a financial forecasting.
Financial forecasting is the estimating of cash repeats and payments for a future period before any adjustments have been made. If implies the technique of determining in advance the requirement and utilization of funds for a future period. It is a systematic presentation of data in the form of financial statements, ratios, involving technique.
Financial forecasting helps in the following ways.


v It reveals any expected surplus of cash or shortage of cash
v Its generates the information useful for financial decision making
v Provides required information for successful financial planning
v It reveals the seasonal requirements of cash such as payments of income tax.
v Its supports good investments and financial policies.


Forecasting is the first stage in the planning process. The forecasting techniques should, there fore, not only be simple but also give precise results. Induction of computers results the total revolution in the forecasting techniques. As a finance manager I have to follow the following forecasting techniques.
Percentage of sales method

It is one of the simplest methods it relates to the sales and comparers between the sales and other items in terms of percentage. Since sales have a significant effort on the financial needs of a business, hence different items of assets and liabilities, revenue, and expenses can be expressed as a percentage of sales. Financial data can now be developed for projected sales at different levels. It is suitable for short term forecasting. It is most beneficial for finance managers and projected statements prepared with the help of this method can be forwarded to Banks, financial institutions etc.
Simple regression method

In case of this method on the basis of past relationship between sales and different items, a regression line of best fit can be drown. The method requires linking sales with one item at a time. Thus, data about different items can be projected with the change in the sales level.
Multiple regressions Method

In this method, sale is considered to be a function of one variable. However in case of multiple regression method a sale is considered to be a function of several variables for computing the amount of different items, it is a best technique.
As a financial Manager, I shall adopt any of the above technique, depending up on the availability of data and the purpose of the forecasting.
Financial forecasting has a great importance in preparation of financial statement. So I shall give much important to the preparation of following financial statements.
Pro forma income statement

I can make the financial forecasting incase of pro forma income statement. The following for important steps develops it.
a. Establishment of sales projection
b. Preparation of Production Schedule and the associated use of new material, direct labour and overhead, do arrive at gross profit.
c. Computation of other expenses.
d. Determination of profit by completing the actual pro
e. forma statement.
Pro forma Income Statement is a firm’s plain of future Business operations and thus one can plan about future with the help of this.
Pro forma Balance Sheet

I can make the financial forecasting in case of pro forma balance sheet. As the balance sheet represent cumulative changes in the Business Over time, the prior periods balance sheet is first examined and then these items are translate through time to represent the latest balance sheet. It us generally prepared in conjunction with the pro forma income statement.
Pro forma funds flow statement

I know the pro forma funds flow statement has its on importance in the financial forecasting. It means the net funds flow between two points in time. The statement gives more details about the anticipated sources and applications of funds or working capital for a future period.
Cash Budget

As a finance manager I have to make financial forecasting through the use of cash budget. Cash budget or cash flow estimates are very specific planning tools. That is prepared every month or even every week. It enable the co-operate management to plan for. Racing adequate cash and appropriate investment of surplus cash. Hence it is concerned with anticipated sources and application of cash for future period.
Thus as a finance manager I will make the financial forecasting in the above base depending up on the situation and resources.