This chapter is primarily concerned with long-term financial planning and financial planning models. The guidelines established as part of the planning process should identify the firm's financial goals, analyze the difference between the firm's current status and the established goals, and identify actions required to achieve those goals. The elements that must be established to develop a financial plan are:

• The firm's needed investment in new assets.
• The degree of financial leverage the firm elects to employ.
• The dividend payment to stockholders.
• The firm's liquidity and working capital requirements.

These four areas represent, respectively, the firm's capital budgeting decisions, capital structure policy, dividend policy, and net working capital decision. These decisions affect the firm's future profitability, need for external financing, and growth opportunities.