Financial Planning - Definition, Objectives and Importance
Definition of Financial Planning
Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.
Objectives of Financial Planning
Financial Planning has got many objectives to look forward to:
- Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
- Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
- Framing financial policies with regards to cash control, lending, borrowings, etc.
- A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.
Importance of Financial Planning
Financial Planning is process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial and investment policies. The importance can be outlined as-
- Adequate funds have to be ensured.
- Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
- Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
- Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
- Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds.
- Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.
Management Study Guide (MSG) is an educational portal launched with the vision of providing students and corporate workforces worldwide with access to rich, easy to understand, frequently updated instruction on many management related topics.
MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - MSG Experts. To Know more, click on About Us.
Learn management concepts & Skills rapidly with easy to understand, richly illustrated learning modules
- Optimum lively Graphics and Animation to make the concept easy to understand
- Enter Your Email Id & Download 8 FREE Powerpoint Presentations Now!