Full budget

A complete financial plan ( VOFI ; in English referred to as Visualization of Financial Implications ) is an instrument of investment calculation and planning. The basic properties of the tabular VOFI are transparency and expandability, which means that this instrument is used more and more against the background of increasing transparency requirements in the corporate environment.

overview

All other key figures of the dynamic methods of investment calculation can be extracted from a VOFI. This gives the opportunity to “expose” the disadvantages and premises of the classic methods of investment calculation. In contrast to the classic static and dynamic methods, the VOFI calculates interest and taxes exactly, which is particularly important for the investment calculation , as it is based on deposits and withdrawals. This results in another special feature of the VOFI: The difficult to calculate discount rate of the classic static and dynamic investment methods no longer needs to be calculated and the investment calculations are therefore much more precise.

The development and scientific foundation of the VOFI is based on the dissertation of Karl-Werner Schulte at the economics faculty of the University of Münster in 1974. In his textbook "Wirtschaftlichkeitsrechnung" [published 1978, 4th edition 1986] the VOFI approach was also one known to a broader academic readership. Its further development, in particular with new technical possibilities and its establishment as a controlling tool, was largely done by Heinz Lothar Grob and his team of chairs at the Westphalian Wilhelms University in Münster .

Conceptual scheme of a standard VOFI

t = 0 ... t = n
Payment sequence of the investment
Equity dispositions
Debt capital disposition
Re- and supplementary dispositions
Income tax payments
Financial balance of 0
Loan and credit balances

Example of a simple standard VOFI

Database for example (all values are rounded to whole numbers):

Investment causes a purchase payment of 12,000 euros at time 0.
It is amortized on a straight-line basis over 5 years.
In the end there is no liquidation proceeds.
The payment sequence at the time of the investment indicates the future deposits and withdrawals that will be caused by the investment. ${\ displaystyle t = 1, \ dotsc, t = 5}$
The available equity is 5000 euros.
An unlimited current account credit can be taken out at any time at an interest rate of 10%.
Surplus income can be invested at an interest rate of 5%.
The income tax rate is 50%.

time	0	1	2	3	4th	5
Payment sequence of the investment	-12000	-6000	7000	10,000	4000	9000
Equity
Opening balance	5000
- withdrawal
+ Insert
Current account credit
+ Recording	7000	2150
Repayment			4242	4908
- Debt interest		700	915	491
Standard system
-Investment				1046	3226	5807
+ Resolution
+ Credit interest					52	214
Tax payments
- Payout			1843	3555	826	3407
+ Reimbursement		4550
Financial balance	0	0	0	0	0	0
Stock sizes
Current account credit balance	7000	9150	4908	0	0	0
Credit balance	0	0	0	1046	4272	10079
Inventory balance	-7000	-9150	-4908	+1046	+4272	+10079

Ancillary calculation for calculating the depreciation

time	1	2	3	4th	5
Book value at the beginning of the year	12000	9600	7200	4800	2400
- depreciation (20%)	2400	2400	2400	2400	2400
Book value at the end of the year	9600	7200	4800	2400	0

Ancillary calculation for calculating income taxes

time	1	2	3	4th	5
Income tax multiplier	50%	50%	50%	50%	50%
Income surplus	-6000	7000	10,000	4000	9000
-Depreciation	2400	2400	2400	2400	2400
Interest expense	700	915	491	0	0
+ Interest income	0	0	0	52	214
Tax base	-9100	3685	7109	1652	6814
Payout		1843	3555	826	3407
refund	4550

criticism

The business problem of the VOFI lies in the lack of attribution of financing processes to the investment under consideration. Due to the indivisibility of the financial sphere of a company, planning for individual investment objects is logically not tenable.

Taxes

Tax refunds in the VOFI are to be interpreted in such a way that losses of an investment in one period lead to a reduction in the overall company profit (which is fully taxed) and thus lower the tax liability.

VOFI-specific key figures

Initial value

see present value

Final value

The natural target value of the VOFI is the final value of the investment, which can be read from the inventory balance of the last period. This value is to be compared with the final value of the opportunity. If the difference is positive, the investment is considered beneficial. The final value of the opportunity is calculated by paying interest on the equity capital initially available at the interest rate of the reinvestment of the surplus income.

{\ displaystyle \ Delta EW = EW ^ {M} -EW ^ {O}}

In the example (interest on the initially available, own liquid funds at a reinvestment rate of 5%, less income taxes):

{\ displaystyle EW ^ {O} = EK_ {0} \ cdot (1 + i (1-s)) ^ {n} = 5000 \ cdot 1,025 ^ {5} = 5657}

Note: Of course, the final value of the opportunity should also be calculated with a VOFI (analogous to the final value of the investment). For the sake of clarity, it was calculated "imprecisely" using the classic formula-based investment method.

It results:

{\ displaystyle \ Delta EW = 10079-5657 = 4422}

The recommendation is: Invest, there . ${\ displaystyle \ Delta EW> 0}$

Total return on investment

Pay-off period

To determine the pay-off period, set up the VOFI of the investment and the VOFI of the opportunity. The opportunity describes the investment of equity over the term at a discount rate. Then you compare the stock balances of the periods of the two VOFIs with each other. The pay-off period is the period in which the balance of the investment is greater than or equal to the balance of the opportunity for the first time.

According to current literature, the pay-off method does not represent a sensible decision-making criterion, as it does not quantify the profitability of the investment, but only indicates the time the investment will be amortized, which is only additional information.

Another simplification of this approach is the payback method , which does not calculate the present values .

Explication of the implicit premises of the classic investment calculation

Annuity

The annuity can be interpreted as the even withdrawal in to at which the final value of the VOFI becomes zero. ${\ displaystyle t = 1}$ ${\ displaystyle t = n}$

Profit comparison calculation

The result of the profit comparison calculation is the withdrawal in the periods to in which the credit balance in the respective period and the final value of the VOFI becomes zero. The result of the profit comparison calculation for the middle period is the credit balance in the middle period. ${\ displaystyle t = 1}$ ${\ displaystyle t = n}$

Internal rate of return

The internal rate of return is that uniform rate of return at which the net present value is zero.

Discount rate

The discount rate can be calculated based on the precisely calculated debit interest and income interest.

NPV

The net present value can be interpreted as the withdrawal in which the additional final value of the VOFI becomes zero - or to put it another way: in which the final value of the VOFI corresponds to the final value of the opportunity. ${\ displaystyle t = 0}$

Software tools

VOFI spreadsheet

Standard tools for calculating and presenting VOFIs are spreadsheets .

mdaVOFI (Model Driven Architecture for VOFI)

There is an open source project for the implementation of VOFI with the application development approach MDA ( model-driven architecture ).

VOFI variants

Balanced Scorecard VOFI (To improve the Balanced Scorecard )
Stochastic VOFI (Simulative VOFI)
VOFI to analyze the effects of changes in interest rates
Fuzzy VOFI
LIVO (liquidity planning with VOFI)

Participation VOFI for group controlling

VOFI evaluation calculation for medium-sized companies

Business start-up VOFIgrob

Supply chain VOFI
Real estate VOFI
VOFI for disinvestment decisions
TCO-VOFI (fixes the weaknesses of the conventional TCO analysis)
InVOFI (Incentive VOFI)
FIRE-VOFI (Finance Invoice VOFI)
LKR-VOFI (performance and cost accounting VOFI)

literature

Karl-Werner Schulte: Optimal period of use and optimal replacement time when maximizing withdrawal. (= Writings on economic research. Volume 89). Verlag Anton Hain, Meisenheim am Glan 1975, ISBN 3-445-01215-6 . (At the same time Münster, dissertation).
Karl-Werner Schulte: Profitability Calculation. 1st edition. Physica-Verlag, Würzburg 1978, ISBN 3-7908-0202-6 . (4th edition. 1986, ISBN 3-7908-0342-1 )
Heinz Lothar Grob : Introduction to the investment calculation. A case study story. 5th, completely revised and expanded edition. Vahlen, Munich 2006, ISBN 3-8006-3276-4 .
Heinz Lothar Grob: Investment calculation with complete financial plans. Vahlen, Munich 1989, ISBN 3-8006-1353-0 (also: Münster, Univ., Habil.-Schr.).

Individual evidence

↑ Karl-Werner Schulte: Optimal period of use and optimal replacement time when maximizing withdrawal. (= Writings on economic research. Volume 89). Verlag Anton Hain, Meisenheim am Glan 1975, ISBN 3-445-01215-6 . (Also Münster, dissertation)
^ Heinz L. Grob: Introduction to the investment calculation. 4th edition. Vahlen, Munich 2001, p. 110.

Web links

Research reports on the VOFI of the Faculty of Business and Economics, Chair of Information Systems & Controlling at the Westphalian Wilhelms University of Münster

[1] Karl-Werner Schulte: Optimal period of use and optimal replacement time when maximizing withdrawal. (= Writings on economic research. Volume 89). Verlag Anton Hain, Meisenheim am Glan 1975, ISBN 3-445-01215-6 . (Also Münster, dissertation)

[Einführung_in_die_Investitionsrechnung-2] Heinz L. Grob: Introduction to the investment calculation. 4th edition. Vahlen, Munich 2001, p. 110.