Question

The governing board develops the HCO’s long-range financial plan (LRFP) to specify and establish annual strategic guidelines (revenue, profit, costs, and capital expenditures). How do HCOs develop their long-range financial plan? Discuss basic LRFP principles.

Answer 1

HCOs developed their long-reange financial plan by developoing a financial system which can forecast the cash flows and especially free cash flows to the firm.The integrated approach should analyse all the constituent of sound financial system and through managerial prudence and intuition develop assumptions which will fit best for the HCOs in any given siatuation. The developed financial model along with long range plan should be in congruence to execute the plan.HCOs have the revenue forecasting and cost forecasting which will provide crystal clear result for the long range financial plan.

Basic LRFP principles are that

- Past data should be studied thoroughly

- Future canot be reflected by past trend so tha macro economic factors should be studied properly.

-Unforeseen and contingency situation which may occur in the futurer should be analysed and planned

-Revenue forecasting should not be exagerated rather it should be kept according to the prevalent market situations.

-Depreciation and capital expenditure should properly taken care of.