The courses on financial statements are a logical consequence of the planning of the operations of the company, which, in addition to producing an economic result, establish both active investment needs non-current or Immobilized as investment in current assets. I know what you’re thinking… “what does that even mean?”
Don’t worry we’re here to help. We have experience as a financial management consultancy, so here goes…
With regard to the needs of investment in non-current assets or fixed assets, because they constitute the productive or operational capacity of the company essential for the development of the operation. The investment needs in current assets, because they are a consequence of the operations carried out and will require a specific volume of investment determined in:
Treasury or available, essential to meet the payments derived from the obligations contracted.
Accounts to act, as a consequence of the credit granted to clients.
Stocks needed to supply the different production and sale processes.
In turn, all these investment volumes make up the so-called total (active) fund demand that must be met with an equivalent volume of financing (passive).
Summing up, the pension income statement, which guides us on the status and evolution of the economic situation of the company, includes the pension result for the period in question, while the pension balance, which guides us on the financial situation, summarizes the volume and structure of the investment and of the financing with final character.
Based on this perspective, any planning or forecasting of the financial statements is really an economic-financial planning although, between financial forecasts and economic-financial planning, there is a distinction between the elaboration procedure and another distinction of emphasis in the interest of the analysis .
Observing planning according to its time horizon, we will conclude that in short-term planning, the budget of revenues, costs, treasury and financing is worked out in detail, working with information disaggregated by each concept and, as far as possible, approaching each budget to the predetermined objectives, even, establishing dates for operations within the fiscal year.
On the contrary, in long-term planning such a procedure is not viable due to a triple question of uncertainty, operability and cost. For long-term plan forecasts, a reasonable and reasoned approximation to the balance sheet and the profit and loss account will suffice. Therefore, this type of forecasts can be made through less expensive and faster procedures that are based on information on general objectives of income and profitability, investments in fixed assets, financial operations as well as management policies of current assets.
Furthermore, in these long forecasts, the emphasis placed on analysis and control is also different from the annual budget, being, in the first case, focused on the management and exhaustive control of the benefit and of the items that comprise it, since profitability depends on its maximization, since the basic investment volume that constitutes a fixed starting data has already been decided.
In a long-term planning all the elements are variable with the only exception of the financial capacity, hence the emphasis is placed on achieving profitability as high as possible in line with the limitations of liquidity and reasonable risk.
For all the above, the most characteristic objective of the financial forecasts is none other than to analyze the variations in the origins and applications of funds produced as a result of the operations carried out during a period, which will determine a new statement of financial situation, ie , the balance.