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.

Answer 1

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:

1. Determination of amount of finance needed.
2. Determination of sources of funds.
3. Determination of suitable policies for proper utilisation of funds.

Objectives of Financial Planning:

1. 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.
2. 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.