Financial Ratios And Creating Financial Plans

Question Description

As managers, we use financial ratios and analysis to “design” our business plans and establish organizational [financial] targets. Assume that you are a consultant assisting a start-up company with creating their business plan. You have advised your client that the business plan is only conceptual until the numbers and terms are added. That is, the sections covering the marketing plan and strategy are interesting, but they are not that meaningful if the business is not justified with viable figures on the bottom line. To that end, you inform the client that you will assist them in creating the business plan section covering financial forecasts and statements. You explain to the client that the financial section of a business plan is one of the most essential components of the plan in order to draw investors or in obtaining a bank loan. Regardless of whether financing is necessary to begin with, you advise the owners they will need to compile a financial forecast in order to set milestones and help in navigating the business.

Required: In paragraph form: (1) Identify the type of business you are the consultant for (retail, manufacturing, restaurant, etc.). Accordingly, (2) select the top six (6) ratios you will use as the foundational measures for establishing the financial section of the business plan. (3) Describe your rationale for selecting these six ratios and (briefly) how they will be used in creating the financial section of the plan; that is, how they will help “pilot” the business.

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