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What are some examples of financial planning models? How are these models used to make financial decisions? Why is it important to use these models? What are the strengths and weaknesses of financial planning models? (at least 200 word). Thanks.

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Some of the examples of financial planning models include deterministic models, simulation based financial models and other specialized financial models. "In a deterministic model, a financial analyst enters a set of input data into a spreadsheet, programs the spreadsheet to perform a series of mathematical calculations, and displays an output result.

Most deterministic financial models are built by performing an analysis on historical data to derive the relationship between key forecast variables. In a corporate context, historical accounting relationships are often used to forecast key revenue and cost variables.

While a deterministic financial model is normally ...

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What are some examples of financial planning models? How are these models used to make financial decisions?

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A. Produce a set of financial statements for 2007. Assume that net working capital will equal 50 percent of fixed assets.
b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2007. What is the projected debt ratio for 2007?

16. Building Financial Models. The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (that is, assets net of depreciation) by $200,000 per year for the next 5 years and forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10 percent of net fixed assets at the end of the year. Fixed costs are expected to remain at $56,000 and variable costs at 80 percent of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 25 percent of total capital.

INCOME STATEMENT, 2006
(figures in thousands of dollars)

Revenue $1,800
Fixed costs 56
Variable costs (80% of revenue) 1,440
Depreciation 80
Interest (8% of beginning-of-year debt) 24
Taxable income 200
Taxes (at 40%) 80
Net income $120
Dividends $80
Retained earnings $40

BALANCE SHEET,YEAR-END
(figures in thousands of dollars)
2006
Assets
Net working capital $400
Fixed assets 800
Total assets $1,200
Liabilities and shareholders' equity
Debt $300
Equity 900
Total liabilities and
shareholders' equity $1,200

a. Produce a set of financial statements for 2007. Assume that net working capital will equal 50 percent of fixed assets.
b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2007. What is the projected debt ratio for 2007?

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