Question

How can the financial plan be used to help management provide guidance to security analysts? Why is an accurate sales forecast critical for financial planning?

Answer 1

Financial Plan is the Business Plan/ Business Model which company prepares based on historical performance and also considering future strategies. It is a comprehensive document that includes details of company cash flow, P&L, Balance Sheet, assumptions, etc. A good financial plan help the companies to make proper strategies in line with the same and accordingly company may take the steps following the same. Based on the plan, strategy, clear roadmap, etc. management give their inputs to security analysts who as per the management information work on the research report of specific organisation and also suggest how the company is/ will be placed against competitors in terms of numbers, valuations, etc. Financial plan also helps the analysts to recommend on buy/ sell of shares of the specific company, which analysts get from the management along with their thinking and also bring conviction to the analyst.

As mentioned above, financial planning of a company reflects its future strategies, roadmap, fund required, etc. and all is subject to meeting the numbers which has been fixed. So, if sales forecast and other parameters would be accurate then company will be able to achieve their goals easily because they will not have to adjust because of non-performance, however, opposite may result in stress, re-working on numbers, may also delay few steps, etc. So, if company have to achieve the desired strategies, roadmap, goal then the financial planning and sales forecast should be more accurate.