George Hedderewick needs to develop a financial plan for Executive Fruit that needs to contain forecasted projections for 2005 - 2007. Financial planning is a method that will require George to consider the overall effect of financial and investment decisions. In financial planning, balance sheets, income statements, budgets and other sources of cash will need to be analyzed and projected. The financial planning will establish goals - standards for measuring performance and will be tied closely to the business' plan. These financial goals for the business will also be related to the business decisions because investment and financing decisions interact with one another. In this case, financial planning will help Executive Fruit think out ahead of time responses to changes in business conditions. Steps that can be taken in financial planning include analyzing finance and investment decisions for Executive Fruit; setting both short term and long term goals and devising a plan on how these goals will be achieved.
One method that can assist in this process involves using planning models. Planning models will make it easier for George to view several different equations/scenarios that would save time and money for his company. This type of model will allow him to forecast the results of certain decisions and better aid in the planning phase.
Using the projected growth of the company and using the 10% expansion the company should be getting a gain in around 5 years. To achieve this, the company needs to not exceed the debt ratio of 60% and each year needs to lower the debt ratio. If the company stays with a constant 40% debt ratio then even when the projected 10-15% interest rate raise the business should continue doing good.
Since financial models do not identify the best financing plan, we...