1. Copyright  2005 by Thomson Learning, Inc. Chapter 13 Short-Term Financial Planning Order Order Sale Payment Sent Cash Placed Received Received Accounts Collection Accounts Collection Time ==> Time ==> Accounts Disbursement Accounts Disbursement Invoice Received Payment Sent Cash Disbursed Invoice Received Payment Sent Cash Disbursed Order Order Sale Payment Sent Cash Placed Received Received Accounts Collection Accounts Collection Time ==> Time ==> Accounts Disbursement Accounts Disbursement Invoice Received Payment Sent Cash Disbursed Invoice Received Payment Sent Cash Disbursed

2. Copyright  2005 by Thomson Learning, Inc. Learning Objectives v Implement the six steps involved in the modeling process. v Differentiate between a long-term financial planning model and short-term financial planning model. v Develop a short-term financial planning model.

3. Copyright  2005 by Thomson Learning, Inc. Types of Models v Deterministic v Stochastic

4. Copyright  2005 by Thomson Learning, Inc. Steps in Modeling Process v Determine question asked v Variable specification v Determine relationship between variables v Parameter estimation v Model validation v Model documentation

5. Copyright  2005 by Thomson Learning, Inc. Percent-of-Sales Model v Needed external funds v 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. Copyright  2005 by Thomson Learning, Inc. Basics of Model Building v Decide on driving variable v Temptation to make model too detailed v Build model into electronic worksheet v Use cell references to minimize model changes

7. Copyright  2005 by Thomson Learning, Inc. Short-Term Financial Planning Model

8. Copyright  2005 by Thomson Learning, Inc. Summary v Basics of financial modeling were discussed. v A percent-of-sales model was developed to illustrate key points. v Logic for a relatively sophisticated short-term financial planning model was developed. v Model optimization was discussed.