A corporate financial model
The factors entering into the financial planning of a large corporation are manifestly intricate, and even in the few instances in which the long term objectives are unambiguously defined it is rarely easy to see how these can be attained. In some cases it is by no means obvious what the objectives should be, but it is hoped that at the corporate level our model could be used to examine the financial implications of alternative decisions and thereby assist in the setting of targets. The development of on-line computer facilities at a reasonable cost allows programs (such as ours) to perform in conversational mode with the user taking decisions during the run. The usefulness of any completely automatic simulation model is limited by the difficulties of quantifying the company's objectives. These are best summed up in somewhat vague financial and socio-political terms. The model has little to offer in the latter field, but when operated by skilled top management should have a significant contribution to make to the former. It would, for instance, be difficult to construct an algebraic formula which draws attention to the possibility of being taken over, but a financial expert using the model would be able to detect the danger signals from the business ratios, balance sheet and profit and loss account items printed out. This would, in turn, help him to isolate the investment decisions that led to this situation.
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