Financial Planning

Financial planning definition.

Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals. The financial plan describes all of the resources and activities that the company will require—and the expected timeframes—for achieving these objectives.

Financial planning is crucial to organizational success because it compliments the business plan as a whole, confirming that set objectives are financially achievable.

The financial planning process includes multiple tasks, including:

  • Confirming the vision and objectives of the business
  • Assessing the business environment and company priorities
  • Identifying which resources the business needs to achieve its objectives
  • Assigning costs business costs centers included in the plan
  • Quantifying the amount of equipment, labor, materials, and other resources needed
  • Creating and setting a budget
  • Identifying any issues and risks with the budget
  • Establishing the time period of the plan or planning horizon, either short-term (typically 12 months) or long-term (2 to 5 years)
  • Preparing a full financial plan summarizing all key investments, budgets and departmental costs

Generally, the financial partner role includes three areas:

  • Strategic financial management;
  • Determining financial management objectives; and
  • Managing the planning cycle itself.
  • Connecting business partners and teams to financial plan

What Is Financial Planning?

Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company’s financial growth. It reflects the current status of the business, what progress they intend to make, and how they intend to make it.

Financial plans include budgets, but the terms are not interchangeable. Budgets are just one piece of a financial business plan, which should also include other important information that contribute to a complete picture of a business’ financial health, such as detailed, itemized breakdowns of company assets; typical expenditures; and forecasts of income, cash flow, and revenue.

Typically, business financial plans also focus on specific growth goals and other long-term objectives, as well as potential obstacles to achieving those objectives. A detailed financial planning checklist can identify overlooked opportunities and highlight possible risks that will affect the growth plan.

The comprehensive financial planning process in business is designed to determine how to most effectively use the company’s financial resources to support the objectives of the organization, both short- and long-range, by accurately forecasting future financial results. Financial planning processes are both analytical and informative, balancing the use of data and metrics to predict the future as well as institutional knowledge in departments and teams.

What is Financial Planning and Analysis (FP&A)?

Financial planning and analysis (FP&A) is a group within a company’s finance organization that supports the health of the organization by engaging in several types of activities: budgeting, integrated financial planning, modeling, and forecasting; decision support via reporting on management and performance; and various special projects. FP&A solutions link corporate strategy and execution, enhancing the ability of the finance department to manage performance.

FP&A professionals provide senior management with forecasts of the company’s operating performance and profit and loss for each upcoming quarter and year. These forecasts allow leadership to assess investments and strategic plans for effectiveness and progress. They also enable improved communication between external stakeholders and management.

To map out future goals and plans and evaluate the company’s progress toward achieving its goals, corporate FP&A professionals analyze the company’s operational aspects both quantitatively and qualitatively. FP&A analysts review past company performance, consider business and economic trends, and identify risks and possible obstacles, all to more effectively forecast future financial results for a company.

In contrast to accountants, who are tasked with accurate recordkeeping, consolidations and reporting, financial analysts must analyze and evaluate the totality of a company’s financial activities and map out the financial future of the business. FP&A professionals manage a broad range of financial scenarios and plans, including capital expenditures, expenses, financial statements, income, investments, and taxes.

Budgeting, planning, modeling, and forecasting

The primary responsibility of FP&A is to anchor the company, unite the business and translate plans to actionable & informed results. . So, what is financial planning and analysis, and how does it look in practice?

Senior management creates and drives the strategic plan in a top-down way, setting net income and revenue goals, core strategic initiatives, and other high-level business targets for the company’s next 2 to 10 years. FP&A’s corporate performance management aim is to develop the financial plan needed to achieve the strategic plan created by management.

In the past, financial planning and analysis teams developed annual budgets that remained mostly static and updated annually. However, whether in tandem with a traditional budget or as a replacement altogether, modern FP&A teams are increasingly developing rolling forecasts to cope with stale static budgets. Other important tasks of FP&A teams that are related to the budgeting, planning, and forecasting process include:

  • Creating, maintaining, and updating detailed forecasts and financial models of future business operations
  • Comparing budgets and forecasts to historical results, and conducting variance analysis to illustrate to management how actual performance and the rolling forecast or budget compare, suggesting ways to improve future performance
  • Assessing expansion and growth opportunities based on forecasts and other projections
  • Mapping out capital expenditures and investments, and other growth plans
  • Generating long-term financial forecasts in the three- to five-year range

corporate financial planning meaning

Decision support and reporting

FP&A reports variances and forecasts, naturally. However, the team also advises management using that data, offering support on decisions concerning performance improvement, risk minimization, or risk benefit analysis of new opportunities from outside and within the company.

One primary piece of this the FP&A team typically generates is the monthly budget versus actual variance comparison. This report explanations of variances; analysis of historical financials; an updated version of the forecast with opportunities and risks related to the current stage of plan; and Key Performance Indicators (KPIs). Ideally, this report or analysis offers leadership information sufficient to identify ways to meet specific goals or optimize performance, and answer imminent questions of stakeholders. However, the true goal of the budget vs. actual report should be to inform the business around gaps or opportunities that inform the future.

Other ongoing pieces of the FP&A team’s reporting and decision support role include:

  • Using key financial ratios such as the current ratio, debt to equity ratio, and interest coverage ratio to gauge the overall financial health of the business
  • Identifying which company products, product lines, or services generate the most net profit
  • Determining which products, product lines, or services have the highest and lowest profit margins—separate from total profit
  • Assessing and evaluating each department’s cost-efficiency in light of the percentage of total company financial resources it consumes
  • Collaborating with departments to prepare and consolidate budgets into a single corporate budget
  • Preparing other internal reports in support of decision making for executive leadership

corporate financial planning meaning

Special projects

Inevitably, the FP&A team works on special projects, depending on the size and needs of the business. For example:

Capital allocation. How much of the organization’s capital should be spent, and on what? Based on factors such as return on investment (ROI) and comparisons with increased stock dividends, different possible investments, and other ways the business could utilize its cash flow, are the company’s current investments and assets the best use of excess working capital?

Market research. What are the sizes and contours of a given market in which the organization may have a competitive advantage? Who are its laggards and leaders, and what potential opportunities does it hold for the company?

M&A. Which potential buy-side support, acquisition targets, integration, and divestiture opportunities exist for the company?

Process optimization. How can the company improve problems of process and workflow inefficiency? How can tools and technology in use by the business speak to and work with each other more effectively?

Ultimately, the FP&A team provides upper management with advice and analysis concerning how to best deploy the organization’s financial resources for optimal growth and increased profitability, while avoiding serious financial risk.

What is Corporate Financial Planning and Analysis?

Corporate financial planning is the process of determining what a company’s financial needs and goals for the future are, and how best to achieve them. Corporate financial planning considers the individual circumstances of the company as well as its broader economic context to determine which activities and investments would be most advantageous and appropriate. Generally, because short-term market trends are more predictable, short-term corporate financial planning involves less uncertainty and more readily adaptable financial plans.

Balanced corporate financial planning should elucidate how the company can achieve its goals and priorities while upholding its values. A financial plan for a corporation achieves at least two aims.

First, it forces management to think about the company’s prospects for business success objectively by basing their analysis on company finances. It also gives lenders and investors a good reason to invest into the business performance, by showing the growth and profit projections. Unrealistic or unbalanced financial plans or plans that understate profits tell investors to reconsider their investment or evaluation.

As a basic matter, three financial statements form the core of a corporate financial plan: income statement, statement of cash flow, and balance sheet. These statements clarify how much profit the business earns, and how much cash actually comes in, compared to the income reflected in accounts receivables. They also detail the relationships between corporate liabilities, corporate assets, and owner equity.

What is the Financial Planning Process?

The financial planning process results in the development of a financial plan, a financial forecast, or both. There are several well-understood steps in this process, and they often come out of sequence, depending on the deliverable or project at hand. However, it’s often simplest to think about these as steps in financial planning as financial planning tips, all of which are parts of a larger, flexible financial planning process.

With that in mind, these key components of financial planning for businesses are, in a sense, a set of best practices for your financial planning checklist.

Forecast revenue

Project revenue or sales for the next three years in a spreadsheet, or even better, in Planful. You’ll track numbers at least monthly in year one, and quarterly in years two and three.

Ideally you want to include sections that track unit sales, pricing, units times price to calculate sales, unit costs, and units times unit cost to calculate COGS or cost of goods sold, also called direct costs. Calculate gross margin, which is sales less cost of sales, and it’s a useful number for considering a new line of business or a new product expansion.

corporate financial planning meaning

Budget expenses

Here you want to determine the actual cost of making the revenue you have forecasted. Differentiate between fixed costs such as payroll and rent and variable costs such as most promotional and advertising expenses. Lower fixed costs mean less risk; higher fixed costs may signal a need for reduced risk tolerance.

Remember, this is not accountancy, but a forecast, so you will have to estimate things such as taxes and interest. Use run rates or average assumptions whenever possible, and estimate taxes by multiplying estimated profits by estimated tax percentage rate. Then estimate interest by multiplying estimated debts balance by estimated interest rate.

Project cash flow

Project cash flow, or dollars moving in and out of the business, in this statement is based partly on balance sheet items, sales forecasts, and reasonable assumptions.

An existing company should have historical documents to base these forecasts on, such as balance sheets and profit and loss statements from years past. A new business which lacks these historical financial statements can project a cash-flow statement broken down month by month.

Remember to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on when compiling a cash-flow projection so you are not reliant on collecting 100 percent to pay your expenses. Some financial planning platforms build these formulas to make these projections simpler.

Project income

The income projection is the company’s pro forma profit and loss statement or P&L, which offers detailed business forecasts for the coming three years. To project income, use expense projections, sales forecasts, and cash flow statement numbers. Sales minus cost of sales equals gross margin. Gross margin minus expenses, interest, and taxes equals net profit.

Compile assets and liabilities

To deal with assets and liabilities that project the net worth of your business at the end of the fiscal year but are not in the profit and loss statement you need a projected balance sheet. Some of these, such as startup assets, are obvious and affect just one part of the process. However, others are less apparent.

For example, although the profit and loss reflects interest, it does not reflect repayment of principle. This means that loans and inventory register only as assets, but only up until you pay for them.

Cope with this by compiling a complete list of assets, equipment, real estate, and an estimate month by month of inventory if the business has it, accounts receivable (money owed to the company), and cash the business will have on hand. Then compile a complete list of liabilities and debts, including outstanding loans.

Conduct breakeven analysis

The breakeven point is when the expenses of the business match volumes or revenue. Undertake this analysis using the three-year income projection. Overall revenue will exceed overall expenses, including interest, within this period of time if the business is viable. Potential investors must engage in this critical analysis to ensure they are investing in a healthy business that is fast-growing and maintains reasonable profit.

Put the plan to work

Many companies work hard to create a financial plan for small business, only to ignore it as soon as it has been created. Placing all of the focus on creating the plan is a major error, because it is a powerful management tool. It is a better practice to compare actual numbers in the profit and loss statement with projections in the financial plan once a month, and use that data to revise future projections.

Compare statements over time

Undertake a financial statement analysis to compare specific items and entire financial statements over time—even the statements of the business to those of other companies. Conduct a ratio analysis to determine the prevailing industry ratios for profitability analysis, liquidity analysis, and debt. Measure the business both against its past performance and other similar businesses by comparing these standard ratios. You can also use the business plans from similar companies as financial plan examples.

Pitch with past plans

Include past financial plans as supplementary documentation of the business’s financial history as the organization applies for a loan or works to attract investment.

Use financial planning software

Obviously, this is a tremendous amount of dynamic information and calculation, making financial planning software a good option for many teams assembling a business plan’s financial section. These digital financial planning tools also enable visual financial projections such as bar graphs and pie charts.

corporate financial planning meaning

What Should Financial Planning Include?

All business financial plans should include: a profit and loss statement; a cash flow statement; a balance sheet; a sales forecast; a personnel plan; business ratios; and a break-even analysis.

Profit and loss statement

The profit and loss statement is a financial statement that goes by several names, including P&L, income statement, and pro forma income statement. By any name, the profit and loss statement is essentially an explanation of how the business either made a profit or incurred a loss over a specific time period—typically three-months. The table lists all revenue streams and expenses, along with the total net profit or loss.

Depending on the type and structure of the business, there are different formats for profit and loss statements. However, in general, include in the profit and loss statement:

  • Revenue or sales
  • Cost of sale or cost of goods sold (COGS), although services companies may not have COGS
  • Gross margin, which is revenue less COGS

Revenue, COGS, and gross margin are at the heart of how most businesses make money.

The P&L should also include operating expenses, those expenses that are not directly associated with making a sale but that are associated with running the business. These are the fixed costs that fluctuations in business really don’t affect, such as utilities, rent, and insurance.

The P&L statement should also include operating income:

  • Gross Margin – Operating Expenses = Operating Income

Typically, operating income is equivalent to EBITDA: earnings before interest, taxes, depreciation, and amortization—although this depends on how the organization classifies expenses. Another way to think about operating income is the amount in profit before tax and interest but after operational costs.

The net income is the bottom line of the business, found at the end of the profit and loss statement. It represents going back to EBITDA and going a few steps further, subtracting expenses for interest, taxes, depreciation, and amortization to find net income:

  • Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

corporate financial planning meaning

Cash flow statement

Just as critical as the P&L, the cash flow statement is typically a per-month explanation of how much cash the business brings in, pays out, and the ending cash balance. This detailed map of how much cash is in play, where it originates and goes to, and the cash flow schedule itself, is essential to any healthy, functional business.

The cash flow statement assists management in understanding the difference between the company’s actual cash position and the reported income on the profit and loss statement. It is just as important to clearly lay this information out for investors and lenders in the cash flow statement to raise funds.

Some businesses might be profitable but still lack the cash to pay expenses and continue to operate. Others might have the cash on hand to stay open even if they are unprofitable—cash flow break-even is vital to future company scale.. Therefore, the cash flow statement is important to understand.

There are two methods of accounting in the cash flow statement—the indirect method and the direct method. Which you select can affect how the cash flow statement and profit and loss statement compare, and accrual accounting might better reflect actual cash flow than cash accounting for many businesses.

Balance sheet

The balance sheet is a picture of the financial position of the business at a specific point in time. It reflects how much cash and equity is on hand, how much is in receivables, and how the business owes vendors and other debtors.

A balance sheet should include:

  • Assets: Cash, inventory, accounts receivable, etc.
  • Liabilities: Debt, loan repayments, accounts payable, etc.
  • Equity: Owners’ equity, investors’ shares, stock proceeds, retained earnings, etc.

Ideally, as the name suggests, the balance sheet items should balance out. Total assets on one side should always equal total liabilities plus total equity.

  • Assets = Liabilities + Equity

Sales forecast

The sales forecast is the FP&A team’s forecast or projections for a set period of what they think will generate revenue. Particularly if a business is seeking investment from investors or lenders, the sales forecast is among the fundamentals of financial planning, and should be part of a dynamic, ongoing process.

The sales or revenue number in the profit and loss statement and the sales forecast should be consistent. In fact, many types of financial planning software automatically connect these projects. Develop, organize, and segment an individualized sales forecast to meet the needs of a specific business.

Personnel plan

The personnel plan identifies the resourced structure and positions needed to run the company operations. How important the personnel plan is depends in large part on the company.

A sole proprietor doesn’t need much of a personnel plan. A large company with high labor costs requires a detailed personnel plan and should invest the necessary time in determining how personnel impacts the business.

A complete personnel plan should describe the expertise, training, and market or product knowledge of each member of the management team. Some businesses might find listing entire departments as a better tactic for the personnel plan.

Business ratios and break-even analysis

To calculate standard business ratios, all that is required are the profit and loss statement, cash flow statement, and balance sheet. Common profitability ratios and liquidity ratios include the gross margin, return on investment (ROI), and debt-to-equity ratios.

The break-even analysis determines how much revenue a business needs to cover all of its expenses, or break even. To assess the break-even point for the business, find the contribution margin—those are the costs necessary to generate revenue.

For management to get an accurate sense of how high revenue must be for the company to stay profitable, they must subtract those contribution margin costs as well as fixed costs from the profit to find that break-even point. For example, most businesses have some labor costs as well as things like insurance and rent—those are fixed costs. Then there might be contribution costs per sale, such as costs per meal prepared in a restaurant or costs per package shipped or outfit sold in a store. A functional business has to cover them all and generate additional profit to break-even.

What are the Steps in Financial Planning?

There are many routes toward creating a solid financial plan. A well-designed financial business plan thoroughly clarifies business goals in financial context and helps a company plan for the future. Although there is no one correct way to engage in financial planning, understanding some basic steps in financial planning can make the process easier.

Review your strategic plan

The strategic plan of the business is usually where comprehensive financial planning services start. If the business lacks such a plan, it’s time to develop one.

As management reviews the plan, they should consider several questions for the coming year:

  • Will we want or need to expand?
  • Will we need to hire talent/staff?
  • Will we need more equipment?
  • What about additional new resources?
  • Are there any other plans that we have in mind this year that will require resources?
  • How will these plans impact cash flow?
  • Will we need financing? If so, how much? Can we revise our plans? Should we?

Fully assess the financial impact of all spending on major projects over the next 12 months.

Develop financial projections

Develop financial projections based on anticipated income and anticipated expenses. Sales forecasts are the basis for anticipated income, while things like costs for supplies, labor, and other overhead form the basis for anticipated expenses. Typically these financial projections will be monthly, but weekly projections may be better for businesses focused on cash optimization.

To make a financial projection, the business will compare project costs from the strategic plan to these anticipated costs and expenses. In other words, the team will look at the costs of doing business as normal plus the costs of adding in the projects, keeping in mind that sales will not always convert to cash immediately.

To create a financial projection, management often also must refer to a projected profit and loss or income statement and a projected balance sheet which it may need to develop in tandem with the financial projection. To assist the team in evaluating the impact of each possible scenario, it can be useful to include various outcomes—optimistic, most likely, and pessimistic—for the projections.

Finance’s advice may be essential to developing financial projections. However, ensure that leadership and anyone who will be seeking financing and explaining the plan to investors and lenders understands the projections and how they fit into the plan.

Arrange financing, plan for growth and contingencies

Determine the financing needs of the business using the financial projections. Well-prepared projections presented to financial stakeholders in advance of deadlines are always more reassuring.

How will the business grow in the coming year? Turn to the FP&A team to make smart investment and growth decisions.

Keep emergency sources of money on hand in case business finances suddenly pivot.. Maintaining credit or a cash reserve are possibilities. Keep laser focus on cash management and optimization.

Financial planning is a dynamic process. Compare projections to actual results throughout the year to see if they are accurate or require adjustments. Monitoring assists businesses in spotting financial problems before they are out of control, and ultimately in identifying smarter growth opportunities.

Consult and use tools

For some businesses, expert help in the form of financial planning services may be necessary to create a financial plan. For many others, the right financial planning software and other financial planning tools are critical to the job.

Why is Financial Planning Important?

A financial business plan has two main purposes. A business needs a financial plan that proves the business will grow, scale, and provide shareholder value over the long term.. Ensuring growth, scale and consistent shareholder value is vital to all stakeholders in the business. . Similarly, the financial plan proves to lenders and banks that the business will be able to repay any loans.

Just as critically, though, a financial forecast benefits leadership. A realistic projection of how the business is likely to perform prepares management and staff. A financial plan is a guide to running a healthy business and should be considered a living document.

There are several other reasons why financial planning is important to a business:

Credibility

Be realistic when developing a financial business plan, make sure your forecast or plan mirrors business reality. However, if you can demonstrate that your financial plan is realistic in a step-by-step way, your financial forecast will be credible. For example, if you break down your figures into components or channels to provide more detailed estimates, you may be able to reassure lenders, investors, and leadership more.

Balancing the balance sheet

Balance sheet optimization is one of the powerful benefits of financial planning. Identifying and assessing all business assets and liabilities and planning in advance how and when to pay all taxes, salaries, expenses, overheads, and miscellaneous costs is part of this process. Another strategy is to divide the business into functions or departments and prioritize them to better identify which important and urgent investment areas.

Long-term visibility

Efficient, comprehensive financial planning gives businesses improved long-term visibility into fund allocation. Analysis of how funds are deployed within a business can positively affect productivity and revenue and offer deeper insight into the health of the business. This kind of visibility also empowers more insightful decision making.

Strategic marketing

No business has endless money to burn on marketing, and a well-designed financial plan helps identify which marketing strategies are most productive for that particular business. Business marketing strategies frame tasks for a company, from planning to execution and implementation.

The marketing team may well be experts across the board when it comes to marketing channels and strategies. However, only actions that generate more business in measurable ways should be planned for the company. Ultimately, finance partnership with the business assesses whether the metrics in the reports justify ongoing marketing campaigns, so for every strategy the team formulates for business, they should highlight the ratio of expense and profits.

Monitoring assets (In’s) and liabilities(Out’s)

The financial team protects the stability of the business by routinely monitoring its assets and liabilities and the ratio of liabilities and assets. This ongoing activity provides insight into needed improvements and actionable ways to decrease liabilities and increase assets.

Measuring profit and loss

The finance team compiles financial planning reports to support evaluation of organizational profits and loss. These reports also showcase the net profits and their main causes, assisting management in evaluating which strategies worked best for the business.

corporate financial planning meaning

What are Financial Planning Benefits?

It is easier for businesses that focus on financial planning to grow their revenues at a quicker pace than it is for companies that lack an efficient financial planning process. Corporate financial planning offers decision making support in the form of forecasts or budgets. It assists businesses in managing costs and building revenues by highlighting where they should focus resources for optimal effectiveness. Impactful financial management nurtures more growth by freeing up more funds for expanding operations, marketing, and product development.

As a broader matter, strategic business planning develops tasks and determines who will be responsible for delivering those tasks in a timely way, thus determining the company’s direction. Financial planning aligns to the strategic plan which then translates to actionable outcomes and measurable results.

The financial plan projects the revenues the team thinks will result from implementing the strategies and the expenses taking those actions will require. Senior management, operations, and marketing personnel are all deeply involved in strategic financial planning, and finance is focused on developing deep business partnerships, connecting the business and tracking the results. Here are some of the specific benefits of financial planning:

The starting point for the financial plan as a whole is what the company aims to achieve in the coming quarter, year, three years, five years, and longer. This is because it is essential to establish that a real need for the business exists, and this company in particular fills the need—a product/market fit.

Many startups devote several years to establishing that product/market fit as they build out and refine their product. In fact, achieving that kind of fit, with smaller checkpoints along the way, is a good one-to-two year goal. In these early stages, the financial plan can reveal to the team that it doesn’t yet make sense to set massive marketing KPIs or sales targets as the refinement process continues.

Business alignment

The financial plan sets forth clear cash flow expectations. For new businesses, the amount of cash going out is often more than is coming in, but it remains important to determine an acceptable level of expense, and ensure the business stays on track, and the statement helps achieve this. Cash flow management is also an important part of a financial plan, so that even team members who are not seasoned finance experts can efficiently and accurately track cash flow as needed. For all of these reasons, a solid financial plan assists with sensible cash flow management.

Agility, collaborative and actionable budgeting

Closely related to both cost reductions and cash flow management, it is essential to know the best way to spend the funding that is actually available to the business, whether through investments, revenue, or some other source. The business should break down the overall budget for the quarter or year into separate budgets for specific teams such as customer support, marketing, product development, and sales. This way management can ensure each budget accurately reflects the team’s productivity and relative importance.

Budgets also allow each team to build within a known set of limits. Team members can effectively plan campaigns and other tasks because they know what resources are available. Furthermore, it is always simpler to track team or project budgets than to monitor overspending at the company level.

Identify spend reductions

A financial plan enables the FP&A team to identify ways to reduce spend in advance. Building a financial plan includes a careful look back over the speed of current growth and what has already been spent. The goal with this kind of spend control is to detect over-inflated costs and unnecessary spending in the past to eliminate it in future budgets. The result from this kind of periodic review is keeping spending in line with expectations and making better use of resources.

Mitigated risks

The finance team assists the business in avoiding risk and navigating pitfalls when they occur. Many risks, from fraud and other forms of economic crises, are predictable and avoidable.

A strong financial plan should account for some uncertainty, business insurance expenses, and other unexpected expenses, and set aside resources to cope with them. Some teams create several financial forecasts with various business outcomes: one that shows results under conditions with more revenue, and others under conditions with less.

Especially during economically volatile times, prepare for many contingencies in the financial plan, which should clarify how the roadmap for the business will change as growth fluctuates.

Crisis management

During a crisis in any business, the first move is typically to review and re-build strategic plans. Without strategic plans in place, a crisis response is merely improvisational.

As the coronavirus crisis and surrounding financial crisis in 2020 and beyond have revealed, finance teams and leaders must constantly reforecast to deal with adversity. Businesses are developing new financial plans quarterly or even monthly to cope, and nobody truly knows when the crises will end.

The financial-planning team should help get through this particular challenge and other crises by focusing on several steps, all using their ongoing financial planning process. The first step in crisis management is to reassess new business operational baselines. Next, the team should use the plans and feedback to build a reality-based plan they will review many different business scenarios.

The team will next determine the business’s general direction and align on a financial plan that fits with this possibly new direction, in context. Then they will identify the best actions for the company to take, as well as any trigger points that could require further changes. A strong financial planning process, FP&A team, and store of financial statements can all make these crisis management steps much simpler.

Be opportunistic around fundraising

Any prospective bank, lender, or investor needs to see financial planning in the form of a business plan. A financial plan must tell a story to investors, while communicating the trustworthiness of the projections.

Roadmap for growth

A financial plan clarifies both the current financial situation of a business, and helps it project where it intends to be in the future. This may be reflected in various specifics, such as number of employees to hire; markets to penetrate; or new services or products to sell. The financial plan itself augments these goals with specific data, such as a budget for a particular number of new employees, including talent and recruitment costs and other resourcing needs.

Transparency

Of course transparency in the financial plan is critical for lenders and investors. But it’s just as important for the team and staff. To ensure your team that the business is healthy, following a solid plan towards growth and scale, and in good leadership hands, a transparent financial plan is key.

Does Planful Help With Financial Planning?

Yes. Planful delivers a continuous planning platform elevating the financial conversation, aligning finance’s need for structured planning with the business’ need for dynamic planning, and enabling your organization to make better decisions more confidently, quickly, and strategically by uniting the business together.

Comprehensive budgeting, planning, and forecasting features offer the financial planning and analysis team the control, structure, and partnership with the business they want. Meanwhile, dynamic planning features empower business leaders and finance with individualized, agile models and plans to manage for multiple business outcomes

Planful also delivers complete financial consolidation, including inter-company eliminations, partial ownership rules, and statutory reporting. The platform also ensures your business meets every management, financial, regulatory, and ad hoc reporting need with a robust library of delivery options and reporting formats.

Planful can help your business:

  • Reduce reporting time up to 90% by automating manual processes
  • Replace annual planning cycles with rolling forecasts to better respond to changing business conditions with increased agility, more accurate financial plans, and optimized financial results in real-time
  • Leverage data from across the business to drive strategic planning, long-term value, and growth
  • Free up time for collaboration and analysis by automating tedious, manual tasks in the planning process
  • Simplify complex ad-hoc financial analysis and explore financial insights with greater confidence and speed
  • Reduce time to close by up to 75% by automating data collection, aggregation, and validation across the organization with low risk and high security thanks to robust, searchable audit logs and strong internal controls
  • Create impressive, professional financial and management reports that share insights with clarity
  • Improve collaboration and workflow with accurate, current data

Find out more about Planful’s Financial Planning solution here.

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Financial Planning and Analysis in Corporate Finance

Finance and planning analysis meeting

Most companies strive to achieve business growth and increase profits. It can be challenging, however, to determine which decisions will lead to the best financial outcomes. For instance, senior executives may wonder if it would be worth it to purchase new equipment that may improve operations or expand into a new market. This uncertainty about the company's major business decisions can lead to conflict among decision-makers and poor strategic planning.

Financial planning and analysis (FP&A) addresses these challenges by providing a systemic, data-driven approach to risk assessment and decision-making. It’s a process designed to help companies use their capital and resources as effectively as possible.

Read on to explore key elements of financial planning and analysis.

Key Components of Corporate Financial Planning

According to the Association for Financial Professionals (AFP), the goal of financial planning and analysis is to “optimize the use of capital and resources by supporting business decisions.” 1 The process aims to create a strategic plan “that coordinates the company, can be measured, and can be checked.” 1 Forecasting and budgeting are key parts of this endeavor.

Forecasting and Budgeting

The National Center for Education Sciences defines financial forecasting as, "the practice of projecting the quantitative impact of trends and changes in the operating environment on future operations. It is an integral part of all ongoing planning efforts." 2 Financial professionals use forecasting to predict future trends in the business’s operations and overall market. These predictions help analysts decide how to allocate resources when creating budgets, which are also known as financial plans. 2

Capital Budgeting

Also called investment appraisal, capital budgeting is the process used to determine which long-term investments are worth pursuing. Companies use this method to calculate the potential risks and benefits of developing new products, building new facilities, and making other significant capital expenditures. 3

The Role of Financial Planning and Analysis in Strategic Decision-Making

The AFP notes that, “FP&A drives strategic business decisions across [an] organization through integrated planning and forecasting, performance management and financial analysis.” 1 This approach offers insights into resource allocation and investments, and allows companies to align their financial and operational goals with their missions.

Building Financial Models

In financial modeling , mathematical formulas and predictive analytics can help forecast a company’s future performance. Analysts can create multiple financial models to predict the outcomes of different decisions and scenarios. 4

As described by the AFP, the models most commonly used in FP&A include: 4

  • Three-Statement Financials, which yield an expected income statement, a balance sheet, and a cash flow statement (sometimes called a pro forma), and is used to see a company's holistic impact or expectation
  • Discounted Cash Flow (DCF): a valuation analysis model that estimates the current value of future expected cash flows of an investment, decision, operation or asset
  • Consolidation, which combines the financial statements of multiple business units into one single entity: the finance teams in disparate parts of a company will develop their unit models and submit them to the corporate FP&A team for consolidation
  • Budget: an aspirational performance plan which is often used for setting corporate and divisional targets and spending allocations as a means toward meeting overall goals and objectives
  • Forecasting, which is the best, realistic estimate of expected performance based on historical data, the current situation and expected actions
  • Sum of the Parts (SOTP), which allows the model-builder to determine what the company’s individual business units would be worth if they were purchased by another entity

Variance Analysis and Performance Measurement

Real life is often unpredictable, so a company’s financial performance doesn’t always align with financial forecasts. Analysts use variance analysis to calculate the difference between projected and actual performance numbers. This method enables businesses to identify deviations and investigate their root causes. 5

Long-Term Financial Planning

Companies use long-term financial planning to make projections and decisions over a multi-year period. This process involves predicting expenses, revenues, trends, risks, and other factors affecting a business’s financial health. Long-term financial planning lets senior management anticipate future obstacles and create a roadmap for growth. 6

Sales Forecasting and Market Trends

Sales forecasting uses current and historical financial and operational data to analyze sales patterns and predict future trends. This forecast considers many factors, including previous revenue, market dynamics, and the economy. Analysts use sales forecasting to identify growth opportunities and set goals for moving a company forward. 7

Operational Metrics and Key Performance Indicators

Key performance indicators (KPIs) are tangible measurements that allow business leaders to monitor their progress toward financial objectives. Finance professionals track many KPIs, such as: 8

  • Average conversion time
  • Number of new leads per month
  • Customer retention rates
  • Website traffic
  • Social media engagement

KPIs should relate directly to a company's goals. For instance, if a business unit wants to increase sales, it may track advertising and customer retention data.

Net Present Value and Internal Rates of Return

Corporate financial analysts use two calculations to evaluate the value of investments over time: net present value (NPV) and internal rates of return (IRR). NPV estimates the value of all future cash inflows and outlays over an investment’s lifetime discounted to the present. IRR calculates the compound annual return the company will earn over the asset's lifetime. 9

Risk Assessment and Mitigation

Companies face many risks to overall financial health, such as economic downturns and legal problems. Analysis professionals can use risk assessment to identify financial risks and develop mitigation strategies. Risk assessment involves several key components: 10

  • Identifying potential threats to the business’s financial health
  • Quantifying the likelihood that risks will occur and their impact
  • Evaluating and prioritizing risks
  • Making strategic decisions to manage risks

Technology and Tools in Financial Planning and Analysis

Financial analysts frequently use digital tools to streamline and improve the accuracy of FP&A. Professionals can use artificial intelligence (AI) and machine learning (ML) to perform advanced analytics and automate routine tasks, such as creating forecasting models. Data visualization software and interactive dashboards also allow analysts to explore and represent data in visual formats. 11

Communicating Financial Insights

Finance professionals must often explain business performance, economic trends, complex financial concepts, and insights to business leaders and stakeholders. For this reason, analysts need outstanding communication skills. In addition, these techniques help them tell compelling stories with data: 12

  • Use simple, jargon-free language
  • Anticipate stakeholder concerns and address them preemptively in reports and presentations
  • Use data visualization tools to show company performance in recognizable graphic forms—tables, pie charts, bar graphs, heat maps, and so on
  • Keep the presentation focused on key metrics instead of trying to cover all data gathered on the entire organization

Corporate Strategy and Financial Analysis

Financial analysis supports many aspects of corporate strategy. Business leaders can use the insights gleaned from this process to make informed decisions about: 13

  • Mergers and acquisitions
  • Investments
  • New products
  • Risk management

Regulatory Compliance and Reporting

Financial planning and analysis can help businesses comply with federal and state regulations. Analysts often prepare financial statements and other reports for regulatory bodies. For example, the United States Securities and Exchange Commission (SEC) requires businesses to file quarterly and annual reports about their financial activities. 14

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  • Retrieved on December 15, 2023, from fpacert.afponline.org/certification/what-is-fp-a
  • Retrieved on December 15, 2023, from nces.ed.gov/pubs2009/fin_acct/chapter3_4.asp
  • Retrieved on December 15, 2023, from learn.saylor.org/mod/book/view.php?id=53745
  • Retrieved on December 15, 2023, from afponline.org/ideas-inspiration/topics/financial-modeling
  • Retrieved on December 15, 2023, from corporatefinanceinstitute.com/resources/accounting/variance-analysis/
  • Retrieved on December 15, 2023, from gfoaorg.cdn.prismic.io/gfoaorg/2049eb17-7ea4-4371-9663-e805972d9a98_10Steps_gfr0422.pdf
  • Retrieved on December 15, 2023, from businessnewsdaily.com/15982-create-sales-forecast.html
  • Retrieved on December 15, 2023, from forbes.com/advisor/business/what-is-a-kpi-definition-examples
  • Retrieved on December 15, 2023, from corporatefinanceinstitute.com/resources/valuation/net-present-value-npv/
  • Retrieved on December 15, 2023, from forbes.com/sites/forbesbusinesscouncil/2023/09/28/fundamentals-of-risk-assessment-methods-and-tools-used-to-assess-business-risks/
  • Retrieved on December 15, 2023, from forbes.com/sites/forbesfinancecouncil/2023/07/24/the-present-and-future-of-financial-planning-and-analysis-fpa/
  • Retrieved on December 15, 2023, from forbes.com/sites/forbesfinancecouncil/2023/09/18/18-ways-to-effectively-communicate-financial-data-to-stakeholders/
  • Retrieved on December 15, 2023, from alliedacademies.org/articles/the-importance-of-financial-analysis-in-business-planning-27039.html
  • Retrieved on December 15, 2023, from sec.gov/education/smallbusiness/goingpublic/exchangeactreporting

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  • Financial Planning

Financial Planning is a vital part of Financial Management. In fact, planning is the first function of management. Before embarking on any venture, the company must have a plan. Let’s understand in detail what Financial Planning is.

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Before initiating a new business , the organization puts an immense focus on the topic of Financial Planning. Financial planning is the plan needed for estimating the fund requirements of a business and determining the sources for the same. It essentially includes generating a financial blueprint for company’s future activities. It is typically done for 3-5 years-broad in scope and generally includes long-term investment, growth and financing decisions.

Browse more Topics under Financial Management

  • Meaning of Business Finance
  • Financial Management and Objectives of Financial Management
  • Financing Decision
  • Capital Structure

Objectives of Financial Planning

  • Ensuring availability of funds : Financial planning majorly excels in the area of generating funds as well as making them available whenever they are required. This also includes estimation of the funds required for different purposes, which are, long-term assets and working capital requirements.
  • Estimating the time and source of funds : Time is a game-changing factor in any business venture. Delivering the funds at the right time at the right place is very much crucial. It is as vital as the generation of the amount itself. While time is an important factor, the sources of these funds are necessary as well.
  • Generating capital structure : The capital structure is the composition of the capital of a company , that is, the kind and proportion of capital required in the business. This includes planning of debt-equity ratio both short-term and long-term.
  • Avoiding unnecessary funds: It is an important objective of the company to make sure that the firm does not raise unnecessary resources . Shortage of funds and the firm cannot meet its payment obligations. Whereas with a surplus of funds, the firm does not earn returns but adds to costs.

Financial Planning

(Source: indiainfoline)

Process of Financial Planning

  • Preparation of sales conjecture.
  • Decide the number of funds – fixed and working capital.
  • Conclude the expected benefits and profile ts to decide the number of funds that can be provided through internal sources.
  • This causes us to evaluate the requirement from external sources.
  • Recognize the conceivable sources and set up the money spending plans consolidating these variables.

Importance of Financial Planning

Financial Planning is the procedure of confining company’s targets, policies , techniques, projects and budget plans with respect to the financial activities lasting for a longer duration. This guarantees viable and satisfactory financial investment policies. The importance is as follows-

  • Guarantees sufficient funds.
  • Planning helps in guaranteeing a harmony between outgoing and incoming of assets with the goal that stability is kept up.
  • Guarantees providers of funds to effortlessly put resources into organizations which provokes financial planning.
  • Financial Planning supports development and expansion programmes which support in the long-run sustenance of the organization.
  • Diminishes vulnerabilities with respect to changing business sector patterns which can be confronted effortlessly through enough funds.
  • Financial Planning helps in diminishing the vulnerabilities which can be a deterrent to the development of the organization. This aids in guaranteeing security and benefits of the organization.

Solved Question for You

Question: Choose the first step of the process of Financial Planning

  • evaluate the requirement from external sources
  • recognize the conceivable sources
  • decide the number of funds that can be provided through internal sources
  • preparation of sales conjecture

Answer. d. Preparation of sales conjecture is the first step in this process.

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Distinguish between financing decision and investing decision

Make a detail discussion how firms deal with their daily financial decisions?

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Financial planning often involves looking for funding to help take your business performance to the next level. Here are some strategies to explore.

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Financial planning is an iterative, ongoing process that helps your business reach its long-term goals. Financial planning strategies assess your business’s current financial position and allow you to adapt to market changes, forecast business growth, and achieve higher returns.

A typical financial strategy combines two key elements to help you reach your short- and long-term financial benchmarks. These elements are debt and investments. As you think about your financial strategy for the next year and beyond, here’s how to evaluate these options for fueling growth.

Start with goal-setting

Before you can determine whether to take on debt or pitch to investors, you must know the result toward which you are working. Set a SMART goal — one that’s Specific, Measurable, Achievable, Relevant, and Time-Bound — that you can break down into smaller financial targets.

For instance, most business owners aim to increase profit. However, there are more manageable goals that you can set along the way to earning more profit, such as:

  • Increase revenue.
  • Streamline operating expenses.
  • Improve customer retention.
  • Optimize pricing.

Set numerical targets and deadlines for these smaller benchmarks to get a clear picture of the resources and financial strategy that will help you make progress toward your larger objective.

[Read more: CO— Roadmap for Rebuilding: Planning Your Financial Future ]

How to use debt as a financial strategy

Loans are the most common form of debt that a company can use in its financial planning strategy. Loans from financial institutions, credit card companies, or even friends and family can be a good way to get the cash you need for short-term investments.

As a financial planning strategy, the appeal of using debt is that it’s relatively flexible. “Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options,” wrote NerdWallet . “Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.”

However, loans have strict eligibility requirements and can be slow to fund, involving a lot of paperwork and a strong credit score. New businesses may struggle to use debt in their financial planning strategy.

Loans are the most common form of debt that a company can use in its financial planning strategy.

How to use equity or investments in financial planning

Issuing equity (stock) is another way to fund your financial plan. Startups in particular can sell shares of ownership to investors to raise capital for growth, expansion, or acquisitions. This allows you to avoid taking on debt and can bring on partners with mentorship and advice to offer.

“With equity financing, there is no loan to repay. The business doesn’t have to make a monthly loan payment which can be particularly important if the business doesn’t initially generate a profit. This in turn, gives you the freedom to channel more money into your growing business,” wrote The Hartford .

The downside of equity financing is that you will need to share a part of your profit with your equity partners. Equity is best suited for financial strategies that require significant capital quickly.

[Read more: 4 Financial Forecasting Models for Small Businesses ]

Final tips for financial planning

Debt and equity are the key ways to ensure you have the cash flow to reach your financial goals, but there are other elements to consider in your strategy. Make sure you plan a safety net for unforeseen risks; build an emergency fund and get insurance to protect your business. In addition, review your financial results quarterly and annually to ensure your projections are realistic.

“As you look over your annual income reports, you can gain insight into the activities that led to improved revenue and double down on them to raise profits as part of your financial plan,” wrote FundKite , a business funding platform.

Revisit your financial plan frequently to make sure the funding options you explore are still serving your business goals. There are plenty of alternative funding sources — such as grants and crowdfunding — that can help you reach short-term benchmarks along the way.

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  • Financial Planning

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What is Financial Planning?

Financial Planning includes all the activities that apply general management standards to the financial resources of a firm such as planning, directing, organizing, procurement of funds, investment, and return of the funds. In this article, students will learn about the meaning, objectives, and features of financial planning. 

Financial Planning is one of the major planning that is required to be conducted by the management. Financial Planning includes all the activities which are related to the procurement of funds, investing those funds, and the return expected from the investment done. Financial Planning also ranges from tax planning which is an important activity. This planning is very important for a business to function, in this regard we have initiated the discussion on this topic ‘Financial Planning’ which is to be studied in greater detail. The scope of this topic is vast hence for a conceptualized study this is to be referred to. 

Definition and Meaning

Financial planning is defined as a document that has records of a business owner or firm's financial situation along with planning on the spending of money to achieve a certain goal by working by a well-devised plan. Financial planning may be made independently or by an experienced planner.

It is basically a financial budget plan, which helps organize the business and includes a set of goals that are supposed to be followed by the firm or business owner to save and spend accordingly. It helps distribute various monetary expenses such as rent, while at the same time saving some amount of money as short-term or long-term savings. 

Financial Planning is the process of estimating the capital requirement and also determining the competitive elements required for financial planning. This is a plan which has been defined as a document that contains a person's current money situation with the long-term monetary goals, the strategies to achieve those goals on the basis of the current fund. A financial plan may be devised and drafted independently or with the assistance of a financial planner. The first step in the creation of a financial plan is to involve collecting the numbers from the web-based accounts into a document or a spreadsheet. 

This type of planning is also known as an investment plan as it manages various types of liquid and other assets that involve risk and uncertainty. Financial planning done by individuals is not as risky as they do not involve huge investment or undertaking, such as funds kept separate for college or university, estates, healthcare, or retirement.

Financial Planning in Financial Management

A financial plan is an overall evaluation of an individual's current pay and future financial state by using the current known variables to predict the future income, asset values, and withdrawal plans. Financial Planning includes the budget which organizes the business and the individual finances and at times includes a series of steps or specific goals for spending and saving for the future. This plan distributes the future income to various types of expenses such as rent or utilities and also reserves some income for the short-term and long-term savings as well. A financial plan is sometimes referred to as an investment plan, while personal financing focuses on specific areas like risk management, estates, colleges, or retirement. 

There two main objectives of financial planning which are given below:

Ensuring Availability of Funds When Required: The foremost and most important objective of financial planning is to keep in check that funds are available in cases of emergency or whenever it is required for use. Sufficient funds should be available with the firms for various purposes.

Check Unnecessary Fundraising by the Firms: Insufficient funds are just as bad as surplus funds. Idle money will only result in a loss for a firm as against investment. Therefore, proper allocation of funds is a very important part of financial planning.

The Objectives of Financial Planning are Enumerated as Follows - 

To Ensure Availability of Funds Whenever Required:  

The foremost objective of financial planning is assuring that sufficient fund is available with the company for different purposes. 

To Check if the Firm Raises the Resources Unnecessarily:

Excess funding is as bad as inadequate funds. If there is a surplus amount of money, then the financial planning is to invest it in the best possible manner as keeping financial resources idle is a great loss for an organization as it will be in vain.

There are a number of features of financial planning that are important for firms and individuals. These are listed below:

Foresight: A plan made without foresight will only result in a disaster. Foresight is needed in planning for estimating risks and the need for liquid and other assets. It may not be 100% accurate but it should be able to give an estimate of the future risks.

Flexibility: A plan made should be flexible as it will help in the future to make adjustments according to the needs. 

Optimal Usage of Funds: A financial plan should be able to utilize idle money and assets so that they can prove to be fruitful in the future. It does not involve funds kept aside for unforeseen circumstances but the assets that could be otherwise utilized.

Simplicity: Financial planning should be simple in terms of structure and should be able to provide a sound allocation of resources that can be easily understood even by a layman.

Liquidity: It is also a very important aspect of financial planning which involves keeping current assets in the form of money. This will help in easy allocation and payment of various kinds like salary, fees, and other kinds.

Features of Financial Planning is Enumerated as below - 

Simplicity: A sound financial structure must provide a simple financial structure that could be managed easily and understandable even to a layman.

Foresight: Foresight must be used in planning to know the estimate and the need for capital which may be estimated as accurately as possible. A plan visualized without any foresight will outcast disaster for the company.

Flexibility: Repeating the financial adjustments becomes necessary hence its flexibility is required so that it is easily adaptable

Optimum use of Funds: Capital should not only be adequate but should also employ productive effects. A financial plan should prevent wasteful use of the capital, thus avoiding idle capacity to ensure proper utilization of funds to earn the capacity in an enterprise.

Liquidity: Current assets are to be kept in the form of liquid cash. Cash is also required to finance purchases, to pay the daily needs like paying salaries, wages, and other incidental expenses.

Conclusion:

Financial Planning is an important aspect of the individual as well as business life. This article gives you an insight into what financial planning comprises and what are its key aspects.

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FAQs on Financial Planning

1. What is meant by financial planning?

Financial planning refers to short-term and long-term planning of allocation of available funds according to the requirements of a business firm by estimating the requirements of the firm and determining the sources of funds.

2. What are the two objectives of financial planning?

The two objectives of financial planning are:

To ensure availability of funds whenever required

To see that funds are not sitting idle or are not raised unnecessarily.

3. How does financial planning act as a link between the present and the future?

Financial planning is made by keeping in mind the future requirements of the firm by allocating liquid assets for proper investment and return.

4. What is the role of financial planning in financial corporate firms?

Financial planning in financial corporate firms helps in determining short term and long term capital requirements like the cost of assets, promotional expenses, and long term planning as well as determining the amount and proportion of capital required by the firm in terms of investment which includes making decisions on debt-equity ratio. Financial planning also helps optimal allocation of resources and funds available and framing financial policies related to investments and cash control.

5. Why is Financial Planning useful?

Finance is the lifeblood of a business, this is very crucial to any organization. Hence, utilizing finance without proper planning will be a fool’s act. The organizations force a special team for planning this fundamental factor. Planning involves estimating the future need of finance, its investment in key areas, and executing the return estimate – these activities are required to proceed on for adequate functioning.

6. Who is a Financial Planner?

A financial planner or a personal financial planner is also a professional person who prepares financial plans for his clients. These financial plans often cover cash flow management, retirement planning, investment planning, financial risk management, insurance planning, tax planning, estate planning, and business succession planning which attracts both individual clients as well as business firms.

7. Why is ‘Investment Plan’ also known as ‘Financial Plan’?

An ‘investment plan’, precisely, is a part of a ‘financial plan’ which means that in order to invest in a particular event or activity, the plan is to be devised to know the requirement of the fund needed in the investment, the return from the investment and its factors related. Thus, we see there is planning involved in the finance of the investment, hence, they can be used as synonyms to each other.

8. Enumerate Principles on Financial Planning.

The Principles are –

Think long-term with goals and investing.

Spend less than you earn.

Maintain liquidity (emergency savings).

Minimize the use of debt.

Putting the ‘A’ back in FP&A

Even though the typical finance organization spends about 10 percent more time and resources on financial planning and analysis (FP&A) activities than it did a decade ago, 1 These data come from McKinsey’s proprietary database on corporate business functions. today’s FP&A teams still find themselves a step behind. Throughout this article, we examine key factors across business unit FP&A that have driven distinctive performance for the business unit and lead to best practice sharing across the enterprise.

Indeed, a number of trends have changed the playing field, especially for business unit or product line FP&A professionals. The increasing frequency and magnitude of economic volatility (for example, supply chain disruptions, labor shortages, etcetera) have put more pressure on traditional FP&A processes and teams, which are geared toward quarterly and annual cycles rather than real-time challenges. Additionally, FP&A teams must deal with an ever-increasing amount of business data that, in turn, require more reconciliation and consolidation before the relevant business insights can be factored into budgets, forecasts, and business plans.

Rather than buckle under the weight of these trends, some leading-edge FP&A teams are using them as a catalyst to improve how they operate and how they support strategy development. They are installing new technologies, tapping new sources of data and types of talent, and launching new reporting processes so they can work faster and smarter—and with more accountability and flexibility. We have also seen such teams reconsider how they generate critical business insights—and how they present those insights to leadership teams and empower them to make bold moves.

These next-level FP&A teams are positioning themselves as trusted partners to the business units—a capability that many CxOs have long claimed they’re looking for  from the finance function. Throughout this article, we take a closer look at how business unit FP&A teams are transforming themselves and helping to transform their organizations, and will spend time in future articles on how corporate FP&A teams are changing to drive consistent performance across the organization.

Improve execution in operations

Next-level FP&A teams have figured out how to build more speed and flexibility into their own processes, which can trigger more efficient and effective operations throughout the company.

They emphasize speed

Many FP&A teams continue to rely on legacy processes—for instance, they generate reports as spreadsheets or static presentations, making it difficult to refresh data, even as the inflow of information about the business increases exponentially. By contrast, next-level FP&A teams have cleansheeted their processes and built fit-for-purpose processes and reports that they run frequently and with a high level of detail.

A business unit of a medical-device company wanted to optimize the production of certain devices to keep pace with competitors. To do so, it would need real-time information about manufacturing resources, pricing, and other factors—something that would not be possible if the company continued generating production reports and forecasts manually at the end of every month.

The FP&A team worked with members of the sales, operations, and IT teams to examine the existing reporting process and find a better, faster approach. They settled on an AI-based software platform that could ingest data from servers across the company and, using a series of algorithms, generate and update sales forecasts and other reports in real time. The team also developed a digital dashboard and a mobile app that the CFO and business unit leaders used to get the latest information and adjust device production in response to the market.

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They rely more on data, less on intuition.

Based on our observations, next-level FP&A teams are more likely than peer organizations to synthesize financial and nonfinancial data to create a consistent fact base that can help inform critical business decisions and improve organizational performance. They work with IT and other technology and operations stakeholders in the business unit to build and manage data lakes (or warehouses) that contain general-ledger financial data, inventory data, sales data, HR data, and a range of external business information. In this way, FP&A teams can easily collate facts and figures and feed them in real time to business leaders who are charged with improving key performance indicators.

For instance, the FP&A team at one consumer products company, with help from IT, has created an enterprise dashboard that executives can call up during their weekly meetings when a performance question arises—for instance, how can we reduce our transportation and logistics costs? The dashboard gives global leaders an end-to-end view of transportation and logistics data—inbound and outbound routes, the amount of raw materials and finished products being transported, and so on. With this information in hand, executives at the consumer products company quickly identified an increase in less-than-truckload (LTL) shipments. By working with inbound shipping companies, adjusting their outbound delivery frequency, and consolidating shipments in certain manufacturing locations, the company reduced instances of half-loaded trucks by about 15 percent, which ultimately reduced its carbon emissions and overall transportation costs.

Develop a detailed perspective on strategy

Next-level FP&A teams set themselves apart by identifying the critical factors that will have a material effect on the business, explicitly link those factors to financial performance with data, and participate in decision making.

Consider the situation at one large food manufacturer. Senior management and the heads of the company’s largest business unit, which was in a declining market, disagreed on the forecast. One group projected significantly higher sales and bottom-line performance than the other. The company’s standard approach to forecasting was based on SKU-level aggregation and a plus–minus approach that had built-in biases and relied heavily on historical data—both of which could skew the results, in the eyes of the FP&A team.

Under a new approach, the FP&A team defined the dozen most critical business factors for the food manufacturer and their impact on top- and bottom-line performance, by product category. (These factors included retail prices, channel trends, rate of private-label substitution, and expected changes to price of commodity inputs.) With more detailed information about those critical business factors, the FP&A team was able to generate a more accurate set of forecasts to ensure that the food manufacturer would have the right products in stock with shorter lead times to customers. The new approach to forecasting brought senior management and the business unit leaders’ perspectives on the business outlook closer together, improved the quality of their dialogue, and ultimately informed the company’s allocation of resources among its branded and private-label businesses. What’s more, the process took half as much time, and ultimately allowed the food manufacturer to capture an additional one to two points of growth and 100 basis points of margin.

Finance 2030: Four imperatives for the next decade

Finance 2030: Four imperatives for the next decade

They enable big moves.

It’s not enough, however, to help C-suite leaders come to the table and agree on strategic direction: next-level FP&A organizations help to build conviction around big strategic moves by framing the case for change—why they are needed, when to make them, and how to get there.

Specifically, FP&A teams can help the company determine how and when to steer financial resources toward the business’s highest-value activities. This is an ongoing process: FP&A teams will need to continually shift between planning and execution. And the CFO, CEO, and other senior leaders will need to continually rely upon the FP&A team to manage the uncertainties that come with making transformational moves.

A business unit of an industrial manufacturer wanted to reposition its portfolio toward specific products, channels, and markets that would drive more stable and profitable growth. The FP&A function through partnerships with sales, operations, R&D, and business development surfaced negative growth and profitability trends across several of its larger product lines. By bringing together key insights such as market growth, product adoption rate, customer buying factors, product capabilities, and cost they were able to make the case for change to shift human and operating capital away from existing large platforms and toward a smaller platform with higher growth and profitability potential. This shift in strategy helped the business unit capture double-digit growth rates and deliver 50 percent in incremental margin over the subsequent three years.

A path to next-level FP&A

For those FP&A organizations seeking next-level status, it will be critical to make internal changes in three areas: processes, technology, and talent . Note that leaders may be looking at a multiyear transformation effort, but, in our experience, taking even small steps now to remake and mobilize the FP&A organization will ultimately result in improved performance.

For financial planning and analysis organizations seeking next-level status, it will be critical to make internal changes in three areas: processes, technology, and talent.

Improve processes to drive performance. As a first step, FP&A leaders (with support from the CFO and others in the C-suite) should evaluate their existing processes to identify critical drivers of company performance. As the medical-device company did, a teardown and rebuild of the planning process linked to key decisions such as pricing or production can yield immediate positive benefits to raise organizational performance.

Invest in technology to deliver deep insights. Making key technology investments is a second lever. FP&A must work with the CEO, the CFO, IT leaders, and other key stakeholders to demonstrate the value of combining business process changes and new technologies—as several of the companies mentioned earlier have done. The FP&A team can help to democratize data through real-time, action-oriented dashboards that bring the organization together around a single source of truth, as the consumer products company demonstrated.

Develop talent beyond core finance capabilities. The role of FP&A continues to evolve to be a more strategic business partner and challenger. Bringing in a developing talent that could identify key performance drivers specific to the industry, define the competitive dynamics that are affecting key financial trends, and influence the organization to change course to enable big moves was demonstrated by both the food and industrial-equipment manufacturers.

Many FP&A organizations are stuck in a rut—consolidating data and spreadsheets; following a predictable, calendar-based rhythm of the business; and relegating themselves to the basic provision of information. By contrast, next-level FP&A teams are emphasizing the “A” in FP&A—that is, taking more agency, managing data more efficiently through the use of digital tools and technologies, finding and sharing insights more quickly, and carving out a role for themselves as critical thought partners to the business. To optimize their own and their company’s performance, traditional FP&A organizations should seek to emulate these next-level teams and focus on two areas for improvement—execution in operations and strategy development.

Steven Eklund is a partner in McKinsey’s Stamford office, Samuel Kang is a senior expert in the Southern California office, and Michele Tam is a senior expert in the Chicago office, where Leon Xiao is an associate partner.

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corporate financial planning meaning

Corporate Finance

corporate financial planning meaning

What is Corporate Finance?

Understanding corporate finance.

  • Key Concepts

corporate financial planning meaning

Corporate Finance: Definition, Types & Examples

corporate finance definition

Corporate finance is the lifeblood of every company, big or small. It deals with the financial decisions that corporations make to maximize shareholder value and ensure the company’s financial health. In essence, corporate finance encompasses a range of strategies and actions related to how an organization manages its capital—its sources of funds—and its use of those funds.

Whether it’s deciding to issue stocks, invest in a new plant, or acquiring another company, all decisions ultimately fall under the umbrella of corporate finance. This field is a complex blend of short-term and long-term decision-making, risk and return trade-offs, and financial engineering.

  • Corporate finance involves managing the financial resources of a corporation to maximize shareholder value.
  • It encompasses various areas such as financial planning, capital budgeting, capital structure decisions, and working capital management.
  • The goal of corporate finance is to optimize the allocation of funds to achieve long-term profitability and growth.

Corporate finance focuses on the financial management and strategies of a corporation, aimed at optimizing its value by making investment and financing decisions. The ultimate objective is to increase the wealth of the firm’s shareholders while mitigating financial risks.

  • Investment Decisions These relate to how a firm’s funds are allocated among major investment proposals. These decisions involve the capital budgeting process, where the management identifies profitable investments that will provide cash flows in the future. Key considerations include the cost of capital and the projected return on investment (ROI).
  • Financing Decisions These are concerned with the firm’s capital structure, which includes decisions about the proportions of equity and debt, and short-term and long-term financing. The main goal is to ensure that the company has enough funds to continue its operations, fund its growth, and provide returns to its investors.
  • Working Capital Management This involves managing the company’s short-term assets and liabilities, such as inventory, accounts receivable, accounts payable, and cash, to ensure the firm has sufficient liquidity to meet its operational needs and financial obligations.
  • Dividend Decisions These involve determining the amount of earnings to be distributed to shareholders as dividends and what portion should be retained for reinvestment in the company.
  • Risk Management Corporate finance also involves developing strategies to manage the risks that a firm faces, such as interest rate fluctuations, foreign exchange risk, commodity price risk, and operational risk.

Understanding these facets of corporate finance is critical to navigate the financial landscape and make informed decisions that drive company growth and investor wealth. In the following sections, we will explore these areas in detail and provide examples of how they are applied in the corporate world.

Key Concepts in Corporate Finance

  • Time Value of Money (TVM) This principle holds that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. It provides the foundation for concepts like discounting and compounding, which are essential in valuing future cash flows.
  • Risk and Return A fundamental tenet in finance is that higher the risk, higher the expected return. Corporations must balance the risk and return trade-off when making investment decisions.
  • Cost of Capital This is the minimum return that a company must earn on its investments to satisfy its investors, both debt and equity. The cost of capital plays a crucial role in deciding whether an investment is financially viable.
  • Capital Structure The term “capital structure” pertains to the combination of debt and equity utilized by a company to support its activities and expansion. The choice of capital structure has significant implications for the cost of capital and the financial risk of the company.
  • Dividend Policy This refers to the decisions made by a company about distributing its earnings to shareholders. The dividend policy must balance the immediate benefits of dividends to shareholders against the long-term growth prospects from retaining and reinvesting earnings.
  • Working Capital Management Efficient management of a company’s short-term assets and liabilities (working capital) is crucial to ensure liquidity and operational efficiency.
  • Financial Statement Analysis This involves the analysis of a company’s financial statements to assess its financial health and make informed business decisions. It includes techniques such as ratio analysis, trend analysis, and common size analysis.

These key concepts provide the theoretical underpinning of corporate finance. By understanding these principles, companies can make strategic decisions to optimize their financial resources, maximize shareholder value, and ensure sustainable growth.

Types of Corporate Finance

  • Investment or Capital Budgeting Decisions This involves making decisions about long-term investments in projects. The primary tool used here is capital budgeting techniques which includes methods like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
  • Financing Decisions This involves deciding the best financing mix or capital structure for the corporation. It involves balancing between equity (like common stock or retained earnings) and debt (like loans or bonds). The goal is to optimize the cost of capital.
  • Working Capital Management This is concerned with short-term financial decisions. It involves managing the corporation’s current assets (like inventory, accounts receivables) and liabilities (like accounts payables). Effective working capital management ensures liquidity and operational efficiency.
  • Dividend Decisions These are decisions regarding the distribution of the corporation’s profits. Management needs to decide whether to distribute earnings to shareholders as dividends or to retain them for reinvestment in the business.
  • Risk Management This involves identifying, analyzing, and taking appropriate measures to mitigate the risks faced by the corporation. These risks can be operational, financial, or related to the market, among others.
  • Mergers and Acquisitions (M&A) This involves making strategic decisions about buying, selling, dividing, and combining entities. M&A can be a significant aspect of corporate finance when corporations aim for growth, diversification, or synergies.

Each type of corporate finance plays a unique and essential role in the overall financial management of a corporation.

Goals of Corporate Finance

The primary goal of corporate finance is to maximize shareholder value while managing the firm’s financial risks. This overarching objective can be further broken down into the following specific goals:

  • Investment Efficiency Corporate finance aims to invest in projects and assets that yield a return greater than the cost of capital. This involves making capital budgeting decisions that can maximize net present value and contribute to business growth.
  • Optimal Capital Structure Another critical goal of corporate finance is to maintain an optimal mix of debt and equity, known as the firm’s capital structure. This balance minimizes the firm’s cost of capital and consequently maximizes the value of the firm.
  • Liquidity Management Ensuring sufficient liquidity to meet short-term obligations and operational expenses is a crucial aspect of corporate finance. Efficient management of working capital, comprising current assets and liabilities, contributes to this goal.
  • Risk Management Corporate finance seeks to identify, assess, and manage financial risks that could impact the firm’s profitability or survival. This involves diversifying investments, hedging against risks, and maintaining appropriate insurance coverage.
  • Profit Retention and Dividend Policy Corporate finance also involves determining the proportion of net earnings to distribute as dividends to shareholders versus retaining for reinvestment in the business. The goal is to reward shareholders while also funding future growth.
  • Value Creation Ultimately, all these aspects converge on the central goal of corporate finance – creating maximum value for shareholders. This involves making strategic financial decisions that increase the firm’s stock price and ensure sustainable, long-term growth.

By achieving these goals, corporate finance contributes to the firm’s financial health, stability, and growth, thereby benefiting not just shareholders but also employees, customers, and the broader economy.

Challenges in Corporate Finance

While corporate finance plays a critical role in the financial success of a business, it also presents numerous challenges that businesses must navigate effectively. Some of the key challenges include:

  • Financial Risk Management One of the biggest challenges in corporate finance is managing financial risks, including market risk, credit risk, liquidity risk, and operational risk. This requires effective risk identification, measurement, and mitigation strategies.
  • Capital Allocation Deciding where to invest capital is a persistent challenge. Businesses need to weigh the potential returns of various projects against their risks, while also considering strategic fit and longer-term business goals.
  • Regulatory Compliance With financial regulations continually evolving, staying compliant can be a complex and resource-intensive task. This includes adhering to regulations on disclosures, corporate governance, tax, and financial reporting standards.
  • Access to Capital Particularly for smaller and less-established companies, gaining access to necessary capital can be challenging. These companies may face higher borrowing costs or more stringent terms and conditions, making capital raising more difficult.
  • Economic Uncertainty Economic volatility can significantly impact a company’s financial decisions. Changes in interest rates, exchange rates, and inflation can alter the cost of capital, profitability of investments, and overall financial stability of a company.
  • Technological Change The rapid pace of technological innovation poses both an opportunity and a challenge. While technology can improve efficiency and open new investment opportunities, it can also disrupt traditional business models and create new types of financial risk.
  • Sustainability and Social Responsibility In today’s business landscape, companies are under increasing pressure to not only be financially successful but also socially responsible and environmentally sustainable. Balancing these demands can be a significant challenge.

Overcoming these challenges requires a combination of financial expertise, strategic thinking, and a proactive approach to risk management. It also requires continuous learning and adaptation as the business environment evolves.

Examples of Corporate Finance

To fully grasp the concept of corporate finance, let’s look at a few real-world examples:

  • Capital Budgeting Amazon’s continuous investment in new business lines like Amazon Web Services (AWS), Amazon Prime, and Amazon Go are examples of capital budgeting decisions. Amazon evaluates the potential cash flows, risks, and strategic fit of these investments before committing capital.
  • Capital Structure The case of Apple Inc. is a prime example of managing capital structure. Despite having a significant cash pile, Apple has consistently issued debt to finance its operations. By doing so, the company can preserve its cash for potential strategic acquisitions and also benefit from the tax deductibility of interest expenses.
  • Working Capital Management Walmart’s efficient management of its inventory, a major part of its current assets, is a good example of working capital management. By implementing an efficient supply chain and inventory management system, Walmart is able to reduce its working capital requirement and increase operational efficiency.
  • Dividend Policy Microsoft’s regular payment of dividends since 2003 is an example of a consistent dividend policy. By providing regular dividends, Microsoft returns excess cash to its shareholders, thus offering a consistent income stream in addition to potential capital gains.
  • Financial Risk Management Banks like J.P. Morgan use sophisticated risk management techniques to mitigate financial risks. This includes the use of derivative instruments to hedge against market risk, as well as robust credit scoring models to manage credit risk.

These examples highlight the varied ways in which principles of corporate finance are applied in the real business world. It’s worth noting that corporate finance decisions often involve complex trade-offs and require careful analysis and judgment.

Corporate finance plays a critical role in managing the financial resources of a company, making strategic investment decisions, optimizing capital structure, and maximizing shareholder value.

The key financial statements in corporate finance include the balance sheet, income statement, and cash flow statement, which provide information about the company’s financial position, performance, and cash flow.

Financial planning is crucial in corporate finance as it helps in setting financial goals, forecasting future financial performance, and creating a roadmap for allocating resources and managing cash flows effectively.

Corporate finance assesses investment opportunities through various methods such as net present value (NPV) analysis, internal rate of return (IRR), payback period, and profitability index, to determine the feasibility and profitability of investment projects.

Paul Boyce is an economics editor with over 10 years experience in the industry. Currently working as a consultant within the financial services sector, Paul is the CEO and chief editor of BoyceWire. He has written publications for FEE, the Mises Institute, and many others.

corporate financial planning meaning

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Corporate Finance

Corporate finance encompasses the strategies, tools, and structures that enable corporations to grow from startups to large and powerful enterprises. Browse Investopedia’s expert written library to learn more.

Understanding Corporate Finance

Corporate finance focuses on how corporations can use long- and short-term financial planning and other strategies to source funding, structure capital, make investments and employ accounting techniques to maximize shareholder value . It focuses both on day-to-day cash flow and on long-term planning.

Corporations have a wide range of ways to raise capital for growth. These include retained earnings (better known as profits), taking on debt, and selling off ownership ( equity funding ). Success lies in finding the correct mix of these methods—and companies can be valued by how they balance their funding sources.

Capital budgeting uses three methods to determine whether a possible capital investment makes sense. The payback period calculates how long it would take for the project to earn enough to recover its cost. The internal rate of return is how much the project should earn—and whether that’s higher than the borrowing cost. The net present value method lets you compare the proposed project to other options to see which project would make more.

A cash flow statement is a sort of corporate checkbook that reconciles a company’s balance sheet and income statement . It records the inflow and outflow of cash and lets investors know whether the revenues that a company has booked on its income statement have actually been received. Note that while a positive cash flow is good, the statement doesn’t account for liabilities and assets; it’s not a complete picture. Some companies with negative cash flows may still be good investments.

Both are important, but equity —the company’s assets minus liabilities—is a more accurate way to estimate what a company is worth. Market capitalization is the total worth of all a company’s outstanding shares; it can fluctuate daily, if not hourly, with the share price on the stock market.

Strategic financial management is how companies make money—and that is the ultimate report card for a manager. Skilled managers focus on long-term success (strategic management), though they may also use tactical management tools to position the company for the short term. Key elements include planning, budgeting, risk assessment and management, establishing ongoing procedures and strategies targeted to the industry/sector in which the company operates.

A company’s total assets minus liabilities, equity is what shareholders would get once all assets were liquidated and all debts paid. The ultimate bottom line, it shows what each investor’s stake is worth.

How big a return would a company need to justify borrowing the money it would take to make a capital investment? Figuring it requires calculating both equity and debt.

The primary and secondary markets where entities that need capital meet potential investors. The stock market and the bond market are the two most common ones. New securities are issued and sold on primary markets; investors seeking existing securities use the secondary market.

U.S. companies issuing financial statements must use this group of accounting principles, issued by the Financial Accounting Standards Board (FASB). These 10 key concepts ensure that financial documents allow for apples-to-apples comparisons among U.S. companies, and that statements are complete and consistent. The international equivalent is called International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).

How long will it take to recover the cost of your investment? That’s its payback period. To calculate the payback period, divide the cost of the investment by the annual cash flow. Obviously, the shorter the breakeven point, the better.

The way a company combines debt and equity to fund its overall operations is its capital structure. Analysts use its debt-to-equity (D/E) ratio to assess the risk level of a company’s borrowing choices. Companies can be high leverage or low leverage.

When a company uses its own resources to pay expenses instead of using them to earn money, there is no exchange of money to be measured through accounting. Examples: A company uses a building it owns instead of renting it out. Or a small business owner takes no salary in the early years of a business.

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Capital One to Acquire Discover, Creating a Consumer Lending Colossus

The all-stock deal, which is valued at $35.3 billion, will combine two of the largest credit card companies in the United States.

A Capital One bank machine.

By Lauren Hirsch and Emma Goldberg

Capital One announced on Monday that it would acquire Discover Financial Services in an all-stock transaction valued at $35.3 billion, a deal that would merge two of the largest credit card companies in the United States.

“A space that is already dominated by a relatively small number of megaplayers is about to get a little smaller,” said Matt Schulz, chief credit analyst at LendingTree.

Capital One, with $479 billion in assets, is one of the nation’s largest banks, and it issues credit cards on networks run by Visa and Mastercard. Acquiring Discover will give it access to a credit card network of 305 million cardholders, adding to its base of more than 100 million customers. The country’s four major networks are American Express, Mastercard, Visa and Discover, which has far fewer cardholders than its competitors.

But consumer advocates pushed back on the possible deal, saying it posed antitrust concerns. “It is very difficult to imagine how federal regulators could allow Capital One to buy Discover given the requirement that mergers benefit the public as well as insiders,” Jesse Van Tol, the chief executive of the National Community Reinvestment Coalition, said in a statement.

The acquisition by Capital One will be one of the first tests of regulatory scrutiny on bank deals since the Office of the Comptroller of the Currency said last month that it intended to slow down approvals for mergers and acquisitions .

“It’s hard to know which way it would go, but there will certainly be a lot of attention paid to this deal because of the money and magnitude of the companies involved,” said Mr. Schulz.

Complicating the landscape is the fact that other deals in the financial industry have come under renewed scrutiny, said David Schiff, a senior partner at West Monroe, a digital services consulting firm. These include New York Community Bank’s acquisition of billions of assets from Signature Bank during the regional banking crisis last year. New York Community Bank recently reported a sizable loss for its most recent quarter, and said it would set aside more capital to act as a buffer against future problems. Much of its troubles stem from the weakening commercial real estate market, but Mr. Schiff said that politicians could point to the deal as an example of one that regulators were too quick to approve.

As part of the acquisition, Capital One will pay Discover shareholders a 26 percent premium based on the company’s closing stock price on Friday. At the close of the deal, which is subject to regulatory approval and is expected in late 2024 or early 2025, Capital One shareholders will own approximately 60 percent of the combined company and Discover shareholders will own the rest.

Discover was valued at about $28 billion when the market closed on Friday, and Capital One was valued at about $52 billion.

The deal is part of Capital One’s strategy to build a global payments network, helping it work directly with merchants and small businesses. And it gives Discover greater scale to compete with other credit card companies. Capital One said the agreement would generate $2.7 billion in pretax savings.

“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” Richard Fairbank, founder, chairman and chief executive of Capital One, said in the statement.

In June, Capital One acquired Velocity Black, a digital concierge company that brings together travel, entertainment, shopping and dining offerings for consumers.

Discover is emerging from a period of turbulence. The company’s former chief executive, Roger Hochschild, stepped down in August amid a regulatory review of incorrectly classified credit accounts. In October, the company said it was taking steps to improve its corporate governance, and in December, it announced its new chief executive, Michael G. Rhodes. The company’s profit in the fourth quarter of 2023 fell 62 percent from the same period the year before.

The once-giant retailer Sears introduced the Discover card in 1985. Discover later became a part of Morgan Stanley before the investment bank spun it out through an initial public offering of stock in 2007.

Given Discover’s recent challenges, the question is whether “regulators view this as a white knight coming in to help fix a troubled player in the market or whether they view this as a limitation of competition — and therefore something to avoid,” Mr. Schiff said.

Rob Copeland contributed reporting.

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Emma Goldberg is a business reporter covering workplace culture and the ways work is evolving in a time of social and technological change. More about Emma Goldberg

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E.V. Uncertainty:  In Michigan, one of six battleground states that could determine the 2024 U.S. presidential election, electric vehicles have emerged as a contested piece of the economic future .

A Climate Retreat:  Many of the world’s biggest financial firms spent the past several years pledging to fight climate change. Now, Wall Street has flip-flopped .

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