Question

1. Strategic plan: Explain the importance of the strategic plan.

Capital budget: What are the various steps in preparing a capital budget?

2. Financing plan: What are the elements of a financing plan?

Financial planning: Identify the steps in the financial planning process.

Financial modeling: List the various elements of financial modeling.

3. Payout ratio: Define the retention (plowback) ratio and the dividend payout ratio.

Answer 1

1. Strategic plans provides a direction for the goals. It helps in guiding the day to day decisions and also helps in the evaluating the progress and changing approaches as the business grows.

The steps in capital budgeting are :

• Identifying the potential opportunities : the capital budgeting process begins by identifying the different opportunities available to a business.
• Estimation of costs : the nest step is the estimation of the operating costs and the costs of implementation of projects.
• The next step would be the cash flow estimation : estimating the cash flows generated by the projects and using the capital budgeting techniques helps in selecting which project should a business choose.
• Next would be the risk assessment: we should evaluate the risk in a project by using the techniques of risk assessment.
• Implement : the last step is implementation of the selected project.

2. Main elements of a financial plan is:

• Retirement plans
• Investment management
• Social security planning.
• risk management
• tax planning
• estate planning
• cash flow and budgeting

The elements of a financial plan is :

• The current financial situation should be determined of the investor plus we should also create a financial plan.
• The next step should be setting up of goals : we should set up goals that determine where would the investor want to see themselves in the future.
• We should also develop alternative courses of action : in order to reach the goals an investor should also develop alternative plans.
• They should also evaluate the alternatives.
• They should create and implement a financial plan.
• At the last, we should revisit and revise the plan as well.

Elements of financial modeling is :

• Income statement
• Balance sheet
• Cash flow statement
• valuation
• Sensitivity analysis
• charts and graphs.

3.Payout ratio is the percentage of the net income that we pay as dividends and retention ratio is the amount which we retain as retained earnings and do not pay dividends.