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Question
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.
Solution
Financial planning has been discussed in the paragraph. Financial planning involves identifying the sources from where the funds can be obtained and ensuring that the required funds are available to the firm as and when needed. One of the basic objectives of financial planning is to ensure that there is neither shortage of funds nor excess funding (glut).
Points highlighting the importance of financial planning are
- Financial planning helps in forecasting the future. For instance, with financial planning, it is possible to forecast whether an expansion would be beneficial in terms of sales and profits.
- It would help in avoiding situations such as shortage or surplus of funds.
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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.
What is meant by Financial Risk?
Explain the twin objectives of financial planning.
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?
Mr. Raghav, Finance manager of Manav InfraTech Pvt. Ltd., prepared a detailed plan of financial needs of the firm in coming six months and the sources from where funds will be acquired to meet out these needs as company is planning to open a new branch in other states of India. Identify the financial concept discussed here:
Assertion (1): Financial planning tries to link the present with the future.
Reason (R): Financial planning is essentially the preparation of a financial blueprint of an organisation's future operations.
| Harish is working as a finance manager in 'Kozee Softwares Ltd.' He has been awarded “Best employee of the year Award’ because of his foresightedness. He always aims at smooth operations of all the financial activities by focusing on fund requirements and their availability in the light of financial decisions. He takes into consideration the growth, performance, investments and requirement of funds for a given period so that financial resources are not left idle and don't unnecessarily add to the cost. |
By doing all this Harish strives to achieve the two main objectives of an important concept of financial management. Identify the concept and explain its two objectives.
