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Intro to Master BudgetIntro to Master Budget
AGEC 489-689AGEC 489-689
Spring 2010Spring 2010
Some Conclusions….
• Indicators of Indicators of growth/survival:growth/survival:– Increasing liquidity– Increasing solvency– Increasing debt
repayment capacity– Increasing profitability
• Indicators of Indicators of potential failure:potential failure:– Declining liquidity– Declining solvency– Decreasing debt
repayment capacity– Decreasing profitability
#3:Pro Forma Analysis#3:Pro Forma Analysis
• Stress testingStress testing current expected cash flows by varying prices, unit costs and yields.
• Look at implications of longer run price and unit cost trends on future future financial healthfinancial health when making major decisions.
Pro Forma AnalysisPro Forma Analysis
When going down the road, use the windshield as well as the rear view mirror!
Master Budget Preparation• Annual operating budgetsAnnual operating budgets
– Sales budget: number of units to besold– Production budget: expected output and inventory– Direct materials budget: planned material use– Direct labor budget: planned labor use– Other budgets: expected selling and administrative
– Needed to prepare the cash budget
• Other annual budgets and statementsOther annual budgets and statements– Capital expenditure budget– Needed to prepare budgeted cash flow statement – Needed to prepare budgeted income statement– Needed to prepare budgeted year end balance sheet
Sales BudgetSales Budget
Design of the Master BudgetDesign of the Master Budget
Sales BudgetSales Budget
Production BudgetProduction Budget
Design of the Master BudgetDesign of the Master Budget
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Design of the Master BudgetDesign of the Master Budget
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Selling and AdministrativeExpense Budget
Selling and AdministrativeExpense Budget
Design of the Master BudgetDesign of the Master Budget
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Selling and AdministrativeExpense Budget
Selling and AdministrativeExpense Budget
Design of the Master BudgetDesign of the Master Budget
Cash BudgetCash Budget
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Selling and AdministrativeExpense Budget
Selling and AdministrativeExpense Budget
Budgeted Cash Flow Statement
Budgeted Cash Flow Statement
Pro Forma Financial StatementsPro Forma Financial Statements
Cash BudgetCash Budget Capital expenditures
Capital expenditures
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Selling and AdministrativeExpense Budget
Selling and AdministrativeExpense Budget
Budgeted IncomeStatement
Budgeted IncomeStatement
Budgeted Cash Flow Statement
Budgeted Cash Flow Statement
Pro Forma Financial StatementsPro Forma Financial Statements
Cash BudgetCash Budget Capital expenditures
Capital expenditures
Sales BudgetSales Budget
Production BudgetProduction Budget
Direct MaterialsBudget
Direct MaterialsBudget
Direct LaborBudget
Direct LaborBudget
OverheadBudget
OverheadBudget
Selling and AdministrativeExpense Budget
Selling and AdministrativeExpense Budget
Budgeted IncomeStatement
Budgeted IncomeStatement
Budgeted Cash Flow Statement
Budgeted Cash Flow Statement
BudgetedBalance Sheet
BudgetedBalance Sheet
Pro Forma Financial StatementsPro Forma Financial Statements
Capital expenditures
Capital expendituresCash BudgetCash Budget
Page 1 of the Master
Budget
Page 1 of the Master
Budget
Page 2 of the Master
Budget
Page 2 of the Master
Budget
Page 3 of the Master
Budget
Page 3 of the Master
Budget
Page 4 of the Master
Budget
Page 4 of the Master
Budget
This is the first of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
This is the first of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
This is the second of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
This is the second of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
This is the second of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
This is the second of three financial statements we have discussed that isgenerated by the financial analysis we will be using later in the semester.
Sources of UncertaintySources of Uncertainty
• Global trends in production and consumption
• Energy prices and core inflation trends
• Interest rates and exchange rates
• Changes in industry subsidies
Accounting for UncertaintyAccounting for Uncertainty
• Stress testing product prices
• Stress testing unit input prices like fuel costs
• Stress testing yields• Stress test interest
rates and exchange rates