Question

What is the relationship between 1) Operating plan 2) FCF 3) Financial plan? How does the Final scenario overcome the deficiencies of Status Quo scenario? Explain.

Answer 1

Operating plan- This plan gives the clarity what we have to achieve and what we are going to do and what strategies are going to be taken. Operating plan is made when strategic and tactic both plan have been made by upper management. Operating plan is more in detail that how the company will achieve its common goal.

Free Cash Flow- It is the cash, generated by company after the decision of capital budgeting. FCF is the quantity of cash that is after the calculation of required investment for any assets or expansion. FCF is a measurement of company's financial health. Increase in FCF is a good sign for company.

FCF = Operating cash flow - Capital expenditures

Financial Plan- It is a measurement of company's current and future financial condition. It takes into consideration the cash flows, assets and expenditures. Financial plan refers to how a company will achieve its financial goals and what are the strategies to be made to achieve those goals. It includes the financial statements with the help of which, company's financial position can be known. It includes a proper financial reporting. It also includes the amount of funds, that a business needs and which financing alternative is better by comparing the cost of capital.