Financial Management: Principles and Applications, 13/e

17.2 Developing a Long-Term Financial Plan

The long-term financial plan typically spans three to five years and serves as the basis for developing the short-term financial plan. Consequently, we open our discussion of the planning process with a discussion of the development of the three- to five-year long-term financial plan. This process begins with a forecast of firm sales, which then serves as the basis for forecasting the firm’s financial position at the end of each year of the planning horizon. The format of the long-term operating financial plan consists of pro forma income statements and pro forma balance sheets. These pro forma financial statements follow the format of the firm’s reported statements but apply to projected or forecast ...