Long-Term Financial Planning

5 important questions on Long-Term Financial Planning

What is forcing consistency?

Financial plans draw out the connections between the firm’s plans for growth and the financing requirements. Financial plans should help to ensure that the firm’s goals are mutually consistent.

What are 3 reasons to build financial plans?

1. Contingency planning
2. Considering options
3. Forcing consistency

What are 4 things that the Financial Planning Process does?

1. Analyzing the investment and financing choices open to the firm
2. Projecting the future consequences of current decisions
3. Deciding which alternatives to undertake
4. Measuring subsequent performance against the goals set forth in the financial plan
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What is the sustainable growth rate?

The highest growth rate the firm can maintain without increasing its financial leverage.

What is the formula for plowback ratio?

Plowback ratio = reinvested earnings / net income

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