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Questions
Explain the twin objectives of financial planning.
State the two objectives of financial planning.
Solution
Financial planning means designing a blueprint for the financial operations of the firm. It ensures the smooth functioning of the organisation by the right allocation of resources available at the right time. It helps the firms are able to forecast the requirement of find in the future.
Financial planning includes:
- Calculate the amount of money required.
- Determination of funding sources.
- Determination of appropriate policies for proper fund utilization.
The objectives of financial planning are to guarantee that sufficient finances are available at the appropriate time.
The two objectives of financial planning are:-
- To ensure the availability of sufficient funds whenever required: This includes an accurate estimate of the finances needed for various reasons (long-term assets/working capital requirements). It needs to estimate when these monies will be made available. Financial planning also attempts to identify potential sources of these funds.
- To see that the firm does not raise resources unnecessarily: Excess funding is just as bad as a lack of funds. An effective financial planning system ensures that money is not raised excessively in order to minimise unwanted expense increases. If there is any extra money, it should be spent wisely to avoid any losses for the organisation.
RELATED QUESTIONS
Name and state the aspect of financial management that enables to foresee the fund requirements both in terms of 'the quantum' and 'the timings'.
Name & state the aspect of financial management that provides a link between investment and financing decisions.
Somnath Ltd. is engaged in the business of export of garments. In the past, the performance of the company had been up to the expectations. In line with the latest technology, the company decided to upgrade its machinery. For this, the Finance Manager. Dalmia estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Dalmia, therefore, began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business.
For the remaining funds, he is trying to find out alternative sources from outside. Justify the financial concept discussed in the above para. Also, state the objectives to be achieved by the use of the financial concept, so identified.
Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items in smaller quantities in attractive packages. Performance of the company has been up to the expectations in the past. Keeping up with the latest packaging technology, the company decided to upgrade its machinery. For this, the Finance Manager of the company, Mr Vikrant Dhull, estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Therefore, Mr Vikrant Dhull began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources.
For the remaining funds, he is trying to find out alternative sources. Identify the financial concept discussed in the above paragraph. Also, State any two Points of the importance of the financial concept, so identified.
What is meant by Financial Risk?
Aval Ltd. is engaged in the business of export of canvas goods and bags. In the past, the performance of the company had been upto the expectations. In line with the latest demand in the market, the company decided to venture into leather goods for which it required specialised machinery. For this, the Finance Manager Prabhu prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required and the timings with the objective to ensure that enough funds are available at right time. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds, he is trying to find out alternative sources from outside.
a. Identify the financial concept discussed in the above paragraph. Also, state the objectives to be achieved by the use of financial concept so identified. ( Financial Planning).
b. ‘There is no restriction on payment of dividend by a company’. Comment. ( Legal & Contractual Constraints)
Financial planning arrives at :
Financial planning usually begins with the preparation of a ______ .
______ takes into consideration the growth, performance, investments and requirement of funds for a given period
Detailed plans of action are prepared under financial planning. What benefits does this result in?
