CHAPTER 3

FINANCIAL FORECASTING
AND BUDGETING
PONN NOURAMY, ACCA
 FINANCIAL FORECASTING

- is an essential component of
planning. It serves as a basis for
budgeting and for estimating future
financing requirements.
ការព្យោករណ៍ហិរ��វត�� គឺជ‌ធាតុមយ
ួ សំខាន់ៃនការេធ��ែផនការ
ថវ�ការ។

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ស្រមាប់្របភពហិរ��ប្បទានគឺ េយ�ងឣ‍ចេធ��តាមវ�ធីសា棇�ស�ចំនួនពីរ

INTERNAL FINANCING –
- refers to cash flow generated by the
business enterprise’s normal operating
business.
� ិរ��ប្បទានខាងក��ង គឺសំេ�ដល់លំហរូ សា棇ច់្របាក់ែដលេក�តេចញពីសកម�ភាពឣ‍ជីវកម� ដូចជ‌ ការេ្រប�្របាស់
ការេធ�ហ
Retained earning។

EXTERNAL FINANCING –
- refers to capital provided by parties
outside the business enterprise, such as
investors and banks.
� ខាងេ្រ�ៃនឣ‍ជីវកម�។ ដូចជ‌ការេបាះលក់
ការេធ��ហិរ��ប្បទានខាងេ្រ� គឺសំេ�ដល់មូលធនែដលផ�ល់េដ‌យបុគល

ភាគហ៊ុន បណ� បំណល

ុ កម�ីពីធន‌គារ។

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 ដំណ‌ក់ក�ងការេរៀបចំែផនការ េដ�ម្បីដឹងពីត្រម�វការហិរ��ប្បទាន

Steps in projecting a business

enterprise’s financing needs are:
ែផនការលក់

1. Project the business enterprise’s sales.

2. Project additional variables, such as
expenses.ែផនការចំណ‌យែដលគាំ្រទដល់ការលក់ For Both Fixed Cost and Variable Cost
3. Estimate the level of investment in current
ព្យោករណ៍ក្រមិតៃនការវ�និេយ‌គេ�ក��ង Current & Fixed Asset.
and plant assets ថ‌េត�េយ�ង្រត�វមាន PPE ប៉ុន‌�ន? Cash ប៉ន‌ុ � ន ? Inventory ប៉ន‌ុ � ន?
4. Calculate the business enterprise’s financing
needs. ្របមូ
គណន‌ត្រម�វការហិរ��ប្បទាន ថ‌េត�េយ�ង្រត�វការហិរ��វត�ស
លមូលធនបានេដ‌យវ�ធីណ‌ខ� ះ?
� រុបប៉ុន‌�ន? ថ‌េត�េយ�ងឣ‍ច

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BUDGET គេ្រមាងថវ�ការ គឺជ‌របាយការណ៍ែដលបង‌�ញអំពីែផនការហិរ��វត�្រ� បចាំឆា�ំរបស់្រក�មហ៊ុន។

ថ‌េត�្រក�មហ៊ុនឣ‍ចទទួលបានចំណូលប៉ុន‌�ន? ចំណ‌យប៉ុន‌�ន? បែ្រមប្រម�លធាតុនីមយ

ួ ៗែបបណ‌?

-Represents a business enterprise’s annual

financial plan.
Master budget គឺជ‌គេ្រមាងែផនការលម�ិតែដលមានគេ្រមាងែផនការលក់ ចំណ‌យ េហ�យនិង្របតិបត�ិការហិរ��វត��

េផ្សងេទៀត ែដលនឹងេក�តេឡ�ងេ�ក��ងឆា�ំបន‌្�ប់។
- A comprehensive (master) budget is a
formal statement of management’s
expectation for sales, expenses, volume, and
other financial transactions for the coming
period

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 TYPES OF BUDGET ្របេភទៃនគេ្រមាងថវ�ការ

1. OPERATING BUDGET
1. SALES BUDGET
2. PRODUCTION BUDGET
3. DIRECT MATERIAL BUDGET
4. DIRECT LABOR BUDGET
5. FACTORY OVERHEAD BUDGET
6. SELLING AND ADMINISTRATIVE EXPENSE BUDGET
7. PRO FORMA INCOME STATEMENT

2. FINANCIAL BUDGET
1. CASH BUDGET
2. PRO FORMA STATEMENT OF FINANCIAL POSITION
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គេ្រមាងថវ�ការៃនការលក់ គឺជ‌ចំណច
ុ ចាប់េផ��មេ�ក��ងការេរៀបចំ Master budget ែដលក��ងេន‌ះេយ�ង្រត�វកំណត់ថ‌
េត�េយ�ងឣ‍ចរ�ពឹងលក់បានប៉ុន‌�នឯកតា? េហ�យលក់ក�ងតៃម�ប៉ុន‌�នក��ងមួយឯកតា?

SALES BUDGET
- is the starting point in preparing the master
budget, since estimated sales volume influences
nearly all other items in the master budget
- Ordinarily indicates the quantity in units of each
product the business enterprise expect to sell.
Formula:
Total Sale = Expected sales in units times the unit
sales price

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PRODUCTION
BUDGET
- After sales are budgeted, the production
budget is developed by determining the
number of units expected to be manufactured
in order to meet budgeted sales and inventory
requirements.
FORMULA:
Expected Production Volume
= Planned sales+ Desired Ending Inventory – Beginning inventory

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DIRECT MATERIAL
BUDGET
• It is constructed to show how much material
will be required and how much be purchased
to meet production requirements

Purchase in units = Usage + desired ending

material inventory units – Beginning inventory
units.

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DIRECT LABOR
BUDGET
■ The production requirements in the production budget provide the
starting point for the preparation of the direct labor budget.
■ To compute direct labor requirements, multiply expected
production volume for each period by number of direct labor
hours required to produce a single unit. The result is then
multiplied by the direct labor cost per hour to obtain budgeted total
direct labor costs.

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THE FACTORY OVERHEAD
BUDGET
- It provides a schedule of all manufacturing
costs other than direct materials and direct
labor, such as depreciation, property taxes,
and factory rent.

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 THE ENDING INVENTORY
BUDGET
- It provides the information required for the
construction of budgeted financial
statements.
- It help compute the cost of good sold on the
budgeted income statement and the peso
value of the ending materials and finished
goods inventory that appears on the
budgeted statement of financial position.

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THE SELLING AND ADMINISTRATIVE
EXPENSE BUDGET
- It lists the operating expenses incurred in
selling the products and in managing the
business.

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THE CASH
BUDGET

■ -It helps managers anticipate the expected cash inflow and

outflow for a designated time period, keep cash balances in
reasonable relationship to needs, and avoid both unnecessarily
idle cash and possible cash shortages

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 4 Major Sections of Cash Budget
1. Receipts Section – including the beginning cash
balance, cash collections from customers, and other
receipts
2. Disbursement section – comprising all cash payments
that are planned during the budget period.
3. Cash Surplus or deficit section – which shows the
difference between the cash receipts section and the
cash disbursements section
4. The financing portion – which provides a detailed
account of the of the borrowings and repayments
expected during the budgeting period.

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 THE BUDGETED INCOME
STATEMENT
- It summarizes projections for the various
components of revenue and expenses for the
budgeting period.
Formula:
Sales less variable costs less fixed costs.

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 PERCENT-OF-SALE METHOD
- The most widely used method for projecting
the business enterprise’s financing needs.

- This methods requires financial planners to

estimate future expenses, assets, and
liabilities as a percent of sales for that
period.

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Present year retained earnings
= previous year retained earnings plus
projected net income less cash dividends paid.
External financing needed
= projected total assets less the sum of
projected total liabilities and projected equity

External funds needed

= required increase in assets less spontaneous
increase in liabilities less increase in retained
earnings.

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 Additional Funds Needed
■ Additional funds needed (AFN) is the amount of money a
company must raise from external sources to finance the
increase in assets required to support increased level of
sales. Additional funds needed (AFN) is also called
external financing needed.

■ Additional funds needed method of financial planning

assumes that the company's financial ratios do not
change. In response to an increase in sales, a company
must increase its assets, such as property, plant and
equipment, inventories, accounts receivable, etc. Part of
this increase is offset by spontaneous increase in
liabilities such as accounts payable, taxes, etc., and part
is offset by increase in retained earnings.
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■ TransWorld Inc. runs a shipping business
and has forecasted a 10% increase in sales
over 20Y3. Its assets and liabilities at the
end of 20Y2 amounted to $25 billion and
$17 billion respectively. Sales for the period
were $30 billion and it earned a 4% profit
margin. It reinvests 40% of its net income
and pays out the rest to its shareholders.
Calculate additional funds needed.

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 Full Capacity

■ The equation used to calculate EFN when fixed assets

are being utilized at full capacity is given below.
➢ S0 = Current Sales,
➢ S1 = Forecasted Sales = S0(1 + g),
➢ g = the forecasted growth rate is Sales,
➢ A*0 = Assets (at time 0) which vary directly with
Sales,
➢ L*0 = Liabilities (at time 0) which vary directly
with Sales,
➢ PM = Profit Margin = (Net Income)/(Sales), and
➢ b = Retention Ratio = (Addition to Retained
Earnings)/(Net Income).
 Excess Capacity

■ If the firm has excess capacity in its Fixed Assets then the
Fixed Assets may not have to increase in order to support the
forecasted sales level. Moreover, if the Fixed Assets do need
to increase in order to support the forecasted sales level, then
they will not have to increase by as much as would be required
if they were being used at full capacity.
■ If Forecasted Sales are less than Full Capacity Sales, then
fixed assets do not need to increase to support the forecasted
sales level. On the other hand, if Forecasted Sales are greater
than Full Capacity Sales, then Fixed Assets will have to
increase.
Case 1: S1 Less Than SFC
■ Given that Fixed Assets are currently being utilized at
60% of capacity and the forecasted growth rate in
Sales is 25%.
■ S1 = 1200(1 + .25) = $1500
■ SFC = 1200/.60 = $2000
■ Forecasted Sales are less than Full Capacity Sales the
EFN can be found in one step. Here A*0 is equal to Total
Current Assets which equals $1200.
Case 2: S1 Greater Than SFC
■ When the Forecasted Sales are greater than Full
Capacity Sales, EFN can be determined in two steps.
The first step, EFN1, finds the EFN needed to get to
Full Capacity Sales. The second step, EFN2, finds the
additional EFN to get from Full Capacity Sales to the
Forecasted Sales.
■ The total EFN is simply EFN1 plus EFN2.
Excess Capacity Example: S1 > SFC
■ Given that Fixed Assets are currently being utilized at
90% of capacity and the forecasted growth rate in
Sales is 25%. S0 is 1200
■ S1 = 1200(1 + .25) = $1500
■ SFC = 1200/.90 = $1333.33