What is financial planning and analysis
Financial planning and analysis (F&D) are essentially the process of evaluating, strategizing and budgeting the financial data that will help the company to align itself to its financial objectives and to support key strategic business decisions of the organization. It enables an investor to assess the health of an organization, its exposure to risk, and its overall profitability. The process involves both the allocation of resources and allocation of risk. In addition, a manager must use sound financial planning and analysis techniques to determine where, how and when to invest, and how to manage and control external risks such as inflation, deflation, and social, political and environmental risks.
The major components of financial planning and analysis processes of policy, theory and practice. The policy is regarding the long-term strategy and direction of the organization. Theory addresses questions concerning the relationships between financial variables and objectives. Practical applications involve the management’s ability to execute its policies and interpret its results. Theory and application are interrelated and intertwined. A firm that seeks to implement its policies must have a sound operational structure as well as a solid knowledge base in order to achieve its goals.
The accounting practices employed by managers are often referred to as accounting. A wide range of complex concepts and processes are involved in accounting and include: recording, measurement, aggregation, preparation of reports, interpretation, preventive maintenance, auditing, and resolution of uncertainties. Auditing is the detection and resolution of errors in accounting. Management has a variety of responsibilities to ensure that these processes are properly implemented and that accounting reports are correct and complete. It also plays an important role in the identification and prevention of fraud. For example, it would be unethical for a manager to engage in accounting practices that could result in false-positive claims being issued for fraudulent activity.
Financial planning is an integral part of organizational decision-making. It involves the overall goals and expectations of the organization. A financial plan is developed according to these goals and objectives. It is reviewed periodically to ensure that objectives still remain relevant and need to be adjusted where necessary. Financial planning helps to determine the allocation of resources, the use of financial tools (such as leverage), and allocation of risk among different types of projects.
A budget is a statement of financial expectations of an organization presented to a funding authority and described in terms that can be understood by all users of the information. It helps to provide a description of the organization and detail plans for expenditure and management activities. Budgeting is a continuous process requiring periodic review and adjustments. It is an essential component of financial planning. A budget is not a set amount but rather a series of decisions about how to spend the budgeted funds and at what levels.
Financial planning is an integral part of organizations and requires regular monitoring. It can help to reduce costs and increase efficiency. It is important to understand the impact of forecasted costs and transactions upon future financial goals and objectives. Financial planning must be based on sound modeling techniques and be prepared to change course when necessary. When budgets are based on realistic assumptions about the operating expenses and sales growth and the operating cash flow and forecasted tax revenues, financial planning and analysis can be effective and efficient.