LEARNING GOALS

96

CASH FLOW AND

FINANCIAL PLANNING

CHAPTER

Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU

Accounting:You need to understand how depreciation is used
for both tax and financial reporting purposes; how to develop
the statement of cash flows; the primacy of cash flows, rather
than accruals, in financial decision making; and how pro forma
financial statements are used within the firm.

Information systems:You need to understand the data that
must be kept to record depreciation for tax and financial report-
ing; the information needs for strategic and operating plans;
and what data are needed as inputs for cash-planning and
profit-planning modules.

Management:You need to understand the difference between
strategic and operating plans, and the role of each; the impor-

tance of focusing on the firm’s cash flows; and how use of pro

forma statements can head off trouble for the firm.

Marketing:You need to understand the central role that mar-

keting plays in formulating the firm’s long-term, strategic plans,

and the importance of the sales forecast as the key input for

both cash planning and profit planning.

Operations:You need to understand how depreciation affects

the value of the firm’s plant assets; how the results of opera-

tions are captured in the statement of cash flows; that opera-

tions are monitored primarily in the firm’s short-term financial

plans; and the distinction between fixed and variable operating

costs.

Discuss the cash-planning process and the

preparation, evaluation, and use of the cash

budget.

Explain the simplified procedures used to prepare

and evaluate the pro forma income statement

and the pro forma balance sheet.

Cite the weaknesses of the simplified approaches

to pro forma financial statement preparation and

the common uses of pro forma statements.

LG6

LG5

Understand the effect of depreciation on the LG4

firm’s cash flows, the depreciable value of an

asset, its depreciable life, and tax depreciation

methods.

Discuss the firm’s statement of cash flows, oper-

ating cash flow, and free cash flow.

Understand the financial planning process,

including long-term (strategic) financial plans and

short-term (operating) financial plans.

LG3

LG2

LG1

3