1. Chapter 13 Short-Term Financial Planning
Order Order Sale Payment Sent Cash
Placed Received Received
Accounts Collection
< Inventory > < Receivable > < Float >
Time ==>
Accounts Disbursement
< Payable > < Float >
Invoice Received Payment Sent Cash Disbursed

2. Learning Objectives
Implement the six steps involved in the modeling process.
Differentiate between a long-term financial planning model and short-term financial planning model.
Develop a short-term financial planning model.

3. Types of Models
Deterministic
Stochastic

4. Steps in Modeling Process
Determine question asked
Variable specification
Determine relationship between variables
Parameter estimation
Model validation
Model documentation

5. Percent-of-Sales Model
Needed external funds
Driving variable: sales
(TA/S) x S = new assets
(CL/S) x S = new spontaneous financing
[S x m x (1-dpo)] = new internal equity
NEF = (TA/S) x S - (CL/S) x S - [S x m x (1-dpo)]

6. Basics of Model Building
Decide on driving variable
Temptation to make model too detailed
Build model into electronic worksheet
Use cell references to minimize model changes

7. Short-Term Financial Planning Model

8. Summary Basics of financial modeling were discussed.
A percent-of-sales model was developed to illustrate key points.
Logic for a relatively sophisticated short-term financial planning model was developed.
Model optimization was discussed.