Financial planning and Forecasting Financial Planning and Forecasting is the estimation of value of a variable or set of variables at some

future point. A Forecasting exercise is usually carried out in order to provide an aid to decision making and planning in the future. Business Forecasting is an estimate or prediction of future developments in business such as Sales, Expenditures and profits. Given the wide swings in economic activity and the drastic effects these fluctuations can have on profit margins, business forecasting has emerged as one of the most important aspects of corporate planning. Forecasting has become an invaluable tool for business to anticipate economic trends and prepare themselves either to benefit from or to counteract them. Good business forecasts can help business owners and managers adapt to a changing economy.

Financial planning and forecasting represents a blueprint of what a firm proposes to do in the future. So, naturally planning over such horizon tends to be fairly in aggregative terms. While there are considerable variations in the scope, degree of formality and level of sophistication in financial planning across firms, we need to focus on common elements which include Economic assumptions, Sales forecast, Pro forma statements, Asset requirements and the mode of financing the investments. In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.

Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.

Objectives of the Study

The main objective of the study is to understand the financial position of the company, refers to the development of long-term strategic financial plans that guide the preparation of short-term operating plans and budgets, which focus on analyzing the pro forma statements and preparing the cash budget.

Financial Forecast

Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.

While a financial plan refers to estimating future income, expenses and assets, a financing plan or finance plan usually refers to the means by which cash will be acquired to cover future expenses, for instance through earning, borrowing or using saved cash.

Corporations use forecasting to do financial planning, which includes an assessment of their future financial needs. Forecasting is also used by outsiders to value companies and their securities. This is the aggregative perspective of the whole firm, rather than looking at individual projects. Growth is a key theme behind financial forecasting, so growth should not be the underlying goal of corporation creating shareholder value is enabled through corporate growth.

The benefits of financial planning for the organization are

ing decisions.

against which future performance may be measured.

There are three commonly used methods for preparing the pro forma financial statements. They are:

1. Percent of Sales Method 2. Budgeted Expense Method. 3. Variation Method. 4. Combination Method.

Percent of Sales Method

The percent of sales method for preparing pro forma financial statement are fairly simple. Basically this method assumes that the future relationship between various elements of costs to sales will be similar to their historical relationship. When using this method, a decision has to be taken about which historical cost ratios to be used.

Budgeted Expense Method

The percent of sales method, though simple, is too rigid and mechanistic. For deriving the pro forma financial statements, we assume that all elements of costs and expenses bore a strictly proportional relationship to sales. The budgeted expense method, on the other hand calls for estimating the value of each item on the basis of expected developments in the future period for which the pro forma financial statements are prepared. This method requires greater effort on the part of management because it calls for defining likely developments.

Variation Method

Variation method on the other hand, calls for estimating the items on the basis of percentage increase or decrease of comparing with the same item of base year. It is quite flexible throughout the future period. This method is not like budgeted method, the value estimating for an item under this method is entirely dependent on the historical data.

Combination Method

It appears that a combination of above explained three methods works best. For certain items, which have a fairly stable relationship with sales, the percent of sales method is quite adequate. For other items, where future is likely to be very different from the past, the budgeted expense method or variation method is eminently suitable. A combination method of this kind is neither overly simplistic as the percent of sales method nor unduly onerous as the budgeted expense method or variation method.

Assumptions

The method used for this study is combination method which eminently works best for an organization.The assumptions made for forecasting are as follows:

1. The sales are expected to increase by 20% every year. 2. All expenses are estimated under percentage of sales method. 3. Tax is estimated on the basis of profit. 4. Proposed Dividend to be increased by Rs. 5,000,000 every year. 5. Dividend tax is payable on the basis of proposed dividend. 6. Secured and unsecured loans to be decreased by 5% every year. 7. Tax liability on percentage of sales method. 8. Fixed assets are expected to increase by 2% every year. 9. Work-in-progress of capital is expected to decrease by 10% every year. 10. Investments are expected to increase by 5%. 11. Current assets like inventories and sundry debtors are expected to increase by 2% every year. 12. Cash and it equivalents on the basis of percentage of sales method. 13. Loans and advances are estimated to increase by 5% every year. 14. Current liabilities are expected to increase by 5% every year. 15. Provisions are expected to increase by 10% every year.

Reference :

Financial Management Prasanna Chandra Management Accounting M.Y. Khan and P.K. Jain Advanced Accountancy S.M. Shukla Financial Statements Royal Classic Group www.wikipedia.org www.rcg.in www.mapsofindia.com

Key Performance Indicators of Supply Chain Retail This paper attempts to track key performance indicators (KPIs) in order to figure out the performance of the Supply Chain in the retail sector. It also focuses on inventory replenishment strategies and capacity utilization in the retail sector. In recent years, this sector has spent considerable amount of time and money trying to improve its operations in such a way so as to respond efficiently to customers' needs. This has led to several developments like the introduction of automated store ordering, usage of RFID and etc.

The KPIs helps in directly analyzing the performance of every specific activity and operation and hence also helps in zeroing down to the exact root of the problem, if any, and thus helps the managers to rectify them. The Improvement Opportunities are further explained in detail for achieving a better performance. The KPIs are segregated into different categories accordingly as follows:

Supply Chain and Logistics: The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product.

. % of time spent picking back orders: Number of hours spent on picking back orders as a percentage of working hours.

. Sales order by FTE : This indicator measures the number of customer orders that are processed by full time employees per day. This helps evaluate the workforce cost per order.

. Scrap (or leftover) value %: Scrap (or leftover) value as a percentage of production value.

. Inventory Accuracy: Most Advanced Planning Systems calculate net inventory requirements. If the book inventory used as the basis for these calculations has a high error, the net inventory requirements generated will not reflect the true inventory needs. The inventory error should be factored into the safety stock calculation to protect service levels from variance in inventory due to inventory count accuracy. Key Performance Indicators

. Inventory Carrying Costs: Inventory Carrying Cost = Inventory Carrying Rate x Average Inventory Value

. Inventory Carrying Rate: This can best be explained by the example below

1. Add up annual Inventory Costs: Example: Storage =Rs800k, Handling= Rs400k, Obsolescence =Rs600k, Damage= Rs800k, Administrative= Rs600k, Loss (pilferage etc)= Rs200k. Hence Total=Rs3,400k

2. Divide the Inventory Costs by the Average Inventory Value: Example: Rs3,400k / Rs34,000k = 10%

3. Add: Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere) = 9%, Insurance =4%, Taxes= 6%. Hence, total= 19%

4. Add the percentages: 10% + 19% = 29%. The Inventory Carrying Rate = 29%

. Missed Deliveries per Million (MPM): Measures supplier on time delivery by part reference ordered using the same logic as the quality measure PPM.

Several missed categories are defined such as ; Missing part reference, undershipped, overshipped, delivery window missed etc.

MPM = (Total number of missed deliveries / Total number of part references ordered) x 1,000,000

. Delivery Schedule Adherence (DSA): Delivery Schedule adherence (DSA) is a business metric used to calculate the timeliness of deliveries from suppliers. Delivery schedule adherence is calculated by dividing the number of on time deliveries in a period by the total number of deliveries made. The result is then multiplied by 100 and expressed as a percentage.

. Customer order promised cycle time: The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you should expect (NOT the actual).

. Inventory replenishment cycle time: Measure of the Manufacturing Cycle Time plus the time included to deploy the product to the appropriate distribution center.

. Material value add : Sell price minus material cost divided by material cost.

. Supply chain cycle time: The total time it would take to satisfy a customer order if all inventory levels were 0.

. Fill Rate: The number of items ordered compared with items shipped. Fill rate can be calculated on a line item, SKU, case or value basis.

. On time ship rate: What percent of orders where shipped on or before the requested ship date. On time ship rate can be calculated on a line item, SKU, case or value basis.

. Perfect Order Measure / Fulfillment: The error-free rate of each stage of an order. Error rates are captured at each stage (order entry, picking, delivery, shipped without damage, invoiced correctly) and multiplied together.

. Customer order cycle time: The average time it takes to fill a customer order.

. % of backorders: The number (or percentage) of unfulfilled orders. Inventory: Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

. Independent demand ratio: For manufacturers that also supply replacement parts and consumables this metric helps to define the % mix of demand for an item from independent (outside sources) vs dependent (inside sources). The ratio is calculated by dividing the unit usage for customer orders by the total unit usage of the item from all sources (work orders, sales samples, destructive testing, inventory adjustments, etc.)

. Early receipts to MRP date (required date): Early receipts to MRP date - This is a measure on your Planning efficiencies. Some planners or warehouse personnel may request that the material be brought in long before the plant/operators need the parts. Reasons for doing so may be quality, lead time variance, buffer stock etc. Early receipts to MRP produce higher levels of inventory that are not required yet. In a way, this is at the other end of the scale than JIT. Measure: MRP due date vs Receive to Dock (stores) date.

. Early PO Receipts to PO due date: Early receipts to PO date - This is a measure on your suppliers and their diligence to supply per the contract date. Early receipts to PO produce unexpected deliveries turning up, congested goods inwards and of course higher that projected inventory levels. Measure: PO due date vs Receive to Dock (stores) date.

SCOR: The Supply-Chain Operations Reference-model (SCOR) is a process reference model that has been developed and endorsed by the Supply-Chain Council as the cross-industry standard diagnostic tool for supply-chain management. SCOR enables users to address, improve, and communicate supply-chain management practices within and between all interested parties.

. Order fulfillment cycle time: Order Fulfillment Cycle Time is a continuous measurement defined as the amount of time from customer authorization of a sales order to the customer receipt of product.

. Total supply chain management cost: Total Supply Chain Management Cost is a discrete measurement defined as the fixed and operational costs associated with the Plan, Source, Make, and Deliver supply chain processes.

. Upside supply chain flexibility: Upside Supply Chain Flexibility is a discrete measurement defined as the amount of time it takes a supply chain to respond to an unplanned 20% increase in demand without service or cost penalty.

. Direct Product Cost: Sum of costs associated with manufacturing a specific product.

. Direct Labor Cost: Sum of costs associated with payment of the employee insurances, taxes etc.

. Direct Material Cost: Sum of costs associated with acquisition of support material.

. Time needed to recruit/hire/train additional labor: Amount of time required to achieve a certain substantial improvement concerning the number of employees.

Cash Conversion Cycle (CCC): A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted

into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. Also known as "cash cycle". Calculated as: CCC = DIO + DSO - DPO Where: DIO represents days inventory outstanding, DSO represents days sales outstanding, DPO represents days payable outstanding. Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.

Reference :

Marketing Research: Text and Cases,by Dr. RAJENDRA NARGUNDKAR. Internet Consultation with the supervisor Interaction with respondents News Paper

Impact of macroeconomic factors on money supply Inflation affects the real economy in two specific areas: it can harm economic efficiency, and it can affect total output. We begin with the efficiency impacts:-

Inflation impairs economic efficiency because it distorts prices and price signals. In a low inflation economy, if the market price of a good rises, both buyers and sellers know that there has been an actual change in supply and/or demand conditions for that good, and they can react appropriately. By contrast in a high inflation economy, its much harder to distinguish between changes in relative prices and changes in the overall price level.

Inflation also distorts the use of money. Currency is money that bears a zero nominal interest rate. If the if the inflation rate rises from 0 to 10% annually, the real interest rate on currency falls from 0 to -10% per year. There is no way to correct this distortion. As a result of the negative real interest rate on money, people devote real resources to reducing their money holdings during inflationary times. They go to the bank more often. Corporations set up elaborate cash management schemes. Real resources are thereby consumed simply to adapt to a changing monetary yardstick rather than to make productive investments . Effect of GDP on Money Supply

Money supply and GDP do not automatically affect each other, but Money Supply can affect GDP depending on monetary policy; the expressed intention in economic management is to monitor the money supply to allow transactions to take place. Therefore, if money supply is severely restricted it is likely to affect the GDP: i.e.: reduce the volume of transactions . The GDP can only increase the demand of money... and transactions will stall if that demand is not met. GDP is also inadequate as a measure of real production, because it does not truly represent production, but it is a statistic of dollar value of all transactions that have taken place. A comparison of the two statistics maybe valuable after the fact to examine the difference in growth ratio, to maybe predict near term inflation, if money growth was too much larger than GDP.

Money is NOT increased as a result of greater ability to produce, but it is increased intentionally to attempt to allow the greater ability potential to materialize. Money supply affects GDP by making transactions more efficient. You don't need to find someone to trade with to get what you want, everyone takes money. The more of it there is, the larger this effect becomes.

GDP affects money supply through the banking system. When growth is high, banks make additional loans and expand the money supply. The Federal Reserve also has something to do with it, but the dynamic aspects of money supply rest with the banking sector.

The Effect of Inflation On Monetary Transmission

Having examined the building blocks of money, we now describe the monetary transmission mechanism, the route by which changes in the supply of money are translated into changes in output, employment, prices and inflation. The Reserve Bank is concerned about inflation and has decided to slow down the economy. There are five steps in the process:-

To start the process, the Reserve Bank takes steps to reduce bank reserves. Reserve Bank reduces bank reserves primarily by selling government securities in the open market. This open market operation changes the balance sheet of the banking system by reducing total bank reserves.

Each dollar reduction in bank reserves produces a multiple contraction in checking deposits, thereby reducing the money supply. Since the money supply equals currency plus checking deposits, the reduction in checking deposits reduces the money supply.

The reduction in the money supply increases interest rates and tightens credit conditions. With an unchanged demand for money, a reduced supply of money will raise interest rates. In addition the amount of credit (loans and borrowing) available to people will decline. Interest rates will rise for mortgage borrowers and for businesses that want to build factories, buy new equipment, or add to inventories. Higher interest rates tend to reduce asset prices (such as those of stocks, bonds, houses) and therefore depress the values of peoples' assets.

With higher interest rates and lower wealth, interest sensitive spending-especially investment, tends to fall. The combination of higher interest rates, tighter credit and lower wealth tends to reduce investment and consumption spending. Businesses will scale down their investment plans, as will state and local governments. For example, higher interest rates may lead airlines to stretch out their purchases of new aircraft. Similarly consumers may decide to but a smaller house, or to renovate their existing one, when rising mortgage interest rates increase monthly payments relative to monthly income. In an economy increasingly open to international trade, higher interest rates may raise the foreign exchange rate depressing net exports. Hence, tight money will raise interest rates and reduce spending on interest sensitive components of aggregate demand.

Finally, the pressures of tight money, by reducing aggregate demand, will reduce income, output, jobs and inflation. The aggregate supply and demand analysis shows how a drop in investment and other autonomous spending may depress output and employment sharply. Furthermore, as output and

employment fall below the levels that would otherwise occur, prices tend to rise less rapidly or even to fall. Inflationary forces subside.

The money supply is ultimately determined by the policies of the Central Bank. By setting reserve requirements and the discount rate, and especially by undertaking open market operations, the Central Bank determines the level of reserves, the money supply and short term interest rates based on the Inflation rate and the GDP figures. Inflation rates and GDP figures have a direct impact on the money supply since their increase and decrease determines the level of circulating money in the system as and when required by the Central Bank. Banks and the public are cooperating partners in this process. Banks create money by multiple expansions of reserves; the public agrees to hold money in depository institutions.

Through our regression analysis we have come to conclude that both GDP and Inflation rate have a significant impact on the changes in money supply observed over a period of 15 years in this project work. The regression values are highly significant in explaining the relationship between the dependent and independent variables.

Thus, we conclude that macroeconomic factors like GDP and Inflation rate have a considerable impact on money supply. Reference :

www.bseindia.com for historical prices as on 20th January 2010. www.cmie.com for M&A deals data collection as on 18th January 2010. www.moneycontrol.com for news results as and when required.