Inflation in the structure of the business plan
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Federal Agency for Education of the Russian Federation
Penza State University
Department of Economics, Finance and Management
Coursework on Business Planning
(financial and economic aspect)
1. The structure of the business plan and the content of its sections
2. Description of the business situation
3. Drafting a preliminary business plan
Cash Flow Planning
Igor Blank, Doctor of Economics, Professor of the Department of Business Economics, Kiev University of Trade and Economics
Source: Elitarium. u
In business planning, you constantly have to reckon with the factor of inflation, which, over time, devalues the value of the money in circulation. Influence of inflation affects many aspects of the financial activities of the enterprise. In the process of inflation, the value of certain tangible assets is understated; decrease in the real value of its monetary and other financial assets; understatement of the cost of production, etc. The factor of inflation has a particularly strong effect on the conduct of long-term financial operations of the enterprise.
In business planning, you constantly have to reckon with the factor of inflation, which, over time, devalues the value of the money in circulation.
Influence of inflation affects many aspects of the company's financial activities. In the process of inflation, there is a relative underestimation of the value of individual tangible assets used by the enterprise (fixed assets, inventories, etc.) .); decrease in the real value of its monetary and other financial assets (receivables, retained earnings, financial investment instruments, etc.); understatement of the cost of production, causing an artificial increase in the amount of profit and leading to an increase in tax deductions from it; drop in the real level of future income of the enterprise, etc. The factor of inflation has a particularly strong effect on the conduct of long-term financial operations of the enterprise.
The concept of accounting for the influence of the inflation factor in business planning is the need for a real reflection of the value of its assets and cash flows, as well as ensuring compensation for income losses caused by inflationary processes in the implementation of various financial transactions.
To assess the intensity of inflationary processes in the country, two main indicators are used that take into account the inflation factor in financial calculations - inflation rate and index:
In calculations related to the adjustment of the value of money taking into account the inflation factor, it is customary to use two concepts - the nominal and real amount of funds:
To calculate these amounts of money in the process of increasing or discounting the value of money over time, the nominal and real interest rates are used, respectively:
You will learn about the current changes in the CC by becoming a participant in the program developed jointly with Sberbank-AST JSC. Students who have successfully mastered the program are issued certificates of the established form.
The program was developed jointly with Sberbank-AST JSC. Students who have successfully mastered the program are issued certificates of the established form.
Information of the Ministry of Economic Development of the Russian Federation dated September “Forecast of the socio-economic development of the Russian Federation for the year and for the planning period and years”
The Ministry of Economic Development of Russia has developed a forecast of the socio-economic development of the Russian Federation and projected changes in prices (tariffs) for goods and services of business entities carrying out regulated activities in the infrastructure sector for 2021 and for the planning period of 2022 and 2023 (hereinafter - the forecast).
The spread of the new coronavirus infection has become a major challenge for both the global and Russian economies. The development trajectory in the short and medium term will be determined not only by economic, but also by epidemiological factors.
The forecast has been developed in two versions - basic and conservative. The base case describes the most likely scenario for the development of the Russian economy, taking into account the expected external conditions and the measures taken by economic policy.
The conservative option is based on the premise of a less favorable sanitary and epidemiological situation in the world, a protracted recovery of the global economy and a structural slowdown in its growth rates in the medium term due to the consequences of the spread of the new coronavirus infection.
The projected growth path until the end of 2021 and in 2021 is still characterized by significant uncertainty. The basic and conservative options do not anticipate a "second wave" of new coronavirus infection, but it remains a key source of risk for prognosis parameters.
Forecast for 2021-2023 was built taking into account the need to achieve national development goals for the period up to 2030, while the measures and tools for achieving them will be specified within the framework of the Unified Plan to achieve the national development goals of the Russian Federation for the period up to 2024 and for the planning period until 2030.
Preliminary results of the socio-economic development of the Russian Federation in January-August and the expected results of the socio-economic development of the Russian Federation in the year
Table of Contents
The purpose and objectives of studying the topic is to acquaint students with certain important issues of financial management, such as: financial management in conditions of inflation, business value, bankruptcy and financial restructuring, crisis management; teach the rules for making decisions on the issues under consideration.
Financial management in an inflationary environment
Inflation: concept, measurement
Inflation is a concept that is characterized by an increase in the general price level in the economy or, which is the same thing, by the depreciation (decrease in the purchasing power) of money. If prices fall, deflation takes place.
Deflation is a characteristic sign of a crisis or depression. If deflation in world economic history is episodic (an example is the "Great Depression" of the 1930s), then inflation is constant. Inflation manifests itself to varying degrees in all countries.
According to the rate of price growth, the following types of inflation are distinguished: creeping (inflation rate up to 10% per year), galloping (annual inflation rate fluctuates in the range of 10-50%), hyperinflation (1000% criteria are varied), superinflation (more than 10000%).
In 1956, the American economist Philip Cagen proposed to consider hyperinflation a rise in prices by 50% per month. There have been few situations in history that fit this definition of hyperinflation. There is a widespread idea of hyperinflation when prices rise at least twice in a year - there are many such examples in economic history.
In International Financial Reporting Standards (“Financial Reporting in Hyperinflationary Conditions” IAS 29), one of the signs of hyperinflation is considered to be a cumulative inflation rate over a three-year period of at least 100%.
The highest level of hyperinflation recorded in the world economy took place in Hungary between August 1945 and July 1946, when prices increased 198 times each month. In Russia in the period from 1922 to 1924. prices grew at a monthly rate of 57%.
Open and hidden (suppressed) inflation are distinguished according to the form of manifestation. A sign of open inflation is the overflow of the sphere of circulation with paper money due to their excessive issue. Closed inflation is characterized by a reduction in the mass of commodities in circulation with a constant amount of money issued.
What is net present value (NPV)
Net Present Value (NPV for short) is the difference between the present value of the cash flows received from investing in a project and the deduction of the investment itself. The main purpose of the indicator is to compare the present value of the proceeds from the implementation of the project, which are planned in the future, and the investments in the implementation of this project. Net present value (NPV) allows you to understand what net profit (by analogy with profit, that is, taking into account costs) can be calculated in the future. Conversion to current prices helps to understand this.
Simplified NPV calculation essence:
- The volume of required investments is calculated;
- The projected amount of cash flow from the project is calculated;
- Further, cash flows are adjusted based on from the discount rate;
- The obtained values are compared with each other.
Why NPV is calculated (economic sense)
Before investing financial resources in a particular project, it is necessary to assess the feasibility of these investments. Moreover, investing is almost always a long-term endeavor - whether it is investing money in the creation of a new business, or in the expansion or modernization of an existing production, or the purchase of securities.
In practice, there are a large number of investment analysis tools. The most important thing is to calculate the net present value. The main property of this method is the discounting of cash flows.
The calculation calculates two main cash flows:
- Outflows - the amount of capital investments required to implement the project;
- Inflows - the amount of future receipts (incomes) from the project;
The discount rate is the “cost of capital”. The economic meaning of the discount rate is that it compares the expected income from investing in a project or the return from buying, for example, bonds or other financial instruments from which it is possible to generate income with almost no risk (as opposed to implementing a project, especially if it is a startup) ...
Therefore, investing in a project (and, accordingly, taking on risks) is advisable only if the NPV from its implementation is greater than from investing in the acquisition of financial instruments or a bank deposit.
The discount rate, in turn, consists of the amount of alternative income:
