Financial plan
From Wikipedia, the free encyclopedia
In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.
In business, a financial plan can refer to the three primary financial statements (balance sheet, income statement, and cash flow statement) created within a business plan. Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department.[1] A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.[2]
While excel is often inappropriate for high level industrial strength calculations (portfolios are an example), it is an excellent tool for understanding the computational intricacies involved in financial modeling. It is often the case that the fullest of understanding of models comes by calculating them, and Excel is one of the most accessible and powerful tools for this purpose. [3]
Good use of Excel helps in better decision making, improves processes and the efficiency of individuals and organizations.[1]. While a financial plan refers to estimating future income, expenses and assets, a financing plan or finance plan usually refers to the means by which cash will be acquired to cover future expenses, for instance through earning, borrowing or using saved cash.
The process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.
Financial models can be constructed in many ways, either by the use of computer software, or with a pen and paper. What's most important, however, is not the kind of user interface used, but the underlying logic that encompasses the model. A model, for example, can summarize investment management returns, such as the Sortino ratio, or it may help estimate market direction, such as the Fed model. [2]
[edit] References
- ^ Meigs, Walter B. and Robert F. Financial Accounting, 4th ed. (McGraw-Hill Book Company, 1970) pp. 187-188.
- ^ Barron's Finance, 4th ed, 2000, p.578.
- ^ Simon Benninga Financial Modeling, 2nd ed. (MIT Press, 2000) preface.
