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Question
| 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.
Solution
The following notion is financial planning. It entails creating an organization's financial blueprint. It is the process of evaluating a company's funding requirements and determining potential sources of funding.
Financial planning includes:
- Determination of amount of finance needed.
- Determination of sources of funds.
- Determination of suitable policies for proper utilisation of funds.
Objectives of Financial Planning:
- To ensure availability of funds whenever required: It includes an accurate estimate of the finances needed for various reasons (long-term assets/working capital requirements). It is necessary 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: Excessive financing is just as bad as inadequate funding. Surplus funds lower a company's return and increase its costs.
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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.
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?
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.
