Overview of financial planning
Match each term on the left with its correct corresponding description on the right in the following table:
Terms Descriptions
Provides detailed implementation guidance for a firm's operations, as well as Financial plan a forecast of the company's expected future free cash flows. Provides the Operating plan Dividend policy inputs necessary for a risk management evaluation using sensitivity analysis, scenario analysis, or simulations.
Capital structure
Is based on knowledge of the amount of funds necessary to compensate the firm's shareholders, and the mix of debt and equity capital used to finance the firm
Sets forth specifictargets for cash or share distributions to the firm's shareholders
Which of the following statements about the financial planning process are true? Check all that apply.
Firms should use a performance-based management compensation system that is based on a manager's ability to achieve short-run success.
Once a firm's forecasted financial statements are prepared, the firm must determine how much capital it will need to support these plans.
Management must monitor operations after implementing a financial plan to detect deviations from the plan and adjust accordingly

1. Operating plan: provides detailed implementation guidance for a firm's operations, as well as a forecast of the company's expected future free cash flows.

2. Operating plan: provides the inputs necessary for a risk management evaluation using sensitivity analysis, scenario analysis, or simulations.

3. Financial plan: Is based on knowledge of the amount of funds necessary to compensate the firm's shareholders, and the mix of debt and equity capital used to finance the firm.

4. Dividend policy: sets forth specific targets for cash or share distributions to the firm's shareholders.

Capital structure: describes specific targets for the mix of debt and equity used to finance a firm.

Financial planning can be defined as the process of estimating the amount of capital required for the smooth operations of the business and determine how to achieve the firm's set goals and objectives.

Hence, the following statements are true about financial planning;

I. Once a firm's forecasted financial statements are prepared, the firm must determine how much capital it will need to support these plans.

II. Management must monitor operations after implementing a financial plan to detect deviations from the plan and adjust accordingly.