Process of FINANCIAL planning:
1. Determination of financial objectives : In first stage, Financial objectives of the organisation are determined. It includes "Short-term Financial Objectives" like maintenance of adequate liquidity in the organisation and "Long-term financial objectives" like adequate finance from different sources so as to increase the efficiency of the organisation.
2. Determination of financial policies : In the second stage of Financial planning, Financial policies are determined so that Financial objectives could be achieved. { It includes capitalisation policy, capital structure policy , dividend policy, working capital management policy, credit policy,etc.} In respect of capital structure,the policy of the company maybe to depend on equity share in initial years; regarding distribution of dividend,the policy may be to keep the rate of dividend low in the initial year ; regarding credit sale the policy of the organisation may be to sell goods on credit to creditworthy customer alone.
3. Determination of Financial Procedures: In the third stage of Financial planning, Financial Procedures are determined .It is more clear than policies. It laid down in what order a job will be performed.{like decision regarding depending on equity capital in the initial years of the company is a policy but the different steps taken to procure equity capital fall under the category of financial procedure. Similarly,credit sale is a policy but prescribing the sequence of action to be taken in the case of non-realisation of payment on time, is financial procedure.
OBJECTIVES OF FINANCIAL PLANNING
1. To Ensure Timely Availability of Fund whenever Required: This include a proper estimation of the funds required for different purposes such as for the purchase of long-term assets or to meet day-to-day expenses. There is a need to estimate the time at which these funds are to be made available and what will be its possible sources.
2. To See that the Firm does not raise Resources Unnecessarily: It is always ensured that the balance of cash should neither be in excess nor short.The balance of cash in both these situations is harmful.
In short, it can be said that the objective of the financial planning is to make finance available in appropriate quantity and make it available well in time.
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