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FINANCIAL PLAN
A financial plan is a statement estimating the amount of
capital requirements and determining its composition. It emphasizes on the following aspectsHow much fund is require ? When the fund is require ? How the fund should be raised ? How to use the funds ?
DEFINITION
According to Cohen and Robbins Financial planning should :
1. 2. 3. 4. 5. 6. 7.
Determine the financial resources require to meet the companys operating programme. Forecast the extent to which these requirements will be met by internal generation of funds and the extent to which they will be met from external sources. Develop the best plans to obtain the required external funds. Establish and maintain a system of financial control governing the allocation and use of funds. Formulate programmes to provide the most effective profit-volume-cost relationship. Analyse the financial results of operations Report facts to the top management and make recommendations on future operations of the firm
Flexibility
Solvency and Liquidity Cost
Profitability
Availability of Sources
General Economic conditions Government Control
d)
e) f)
g)
h)
Nature of Business Size of Business Activities Undertaken by the Enterprise or Scope of Business Production Techniques Mode of acquisition of Fixed assets(Extent of Lease or Hire) Acquisition of old Equipment and Plant Decision as Regards Ancilliary Units Availability of Fixed Assets at Concessional Rates
External Factors
a) International conditions and Economic Outlook
e) Shift in technology
f) Government Regulations
Promotion Expenses Incorporation and Organization Expenses Cost of Financing Initial Operating losses Cost of Acquisition of patents, Copyrights, Goodwill etc.
achieve a goal. Plans give direction to actions and ensure that all actions are moving towards stated goals.
A policy is a set of guiding principles or rules which is
framed to influence decisions and actions in implementation of plan that reflects the ultimate behavior of the organization.
FINANCIAL POLICIES
Definition : Criteria describing a corporation's choices regarding its debt/equity mix, capital structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stockholders.
SOURCES OF FINANCE
Internal Source Past Accumulated Profit Provisions 2. External Source i) Ownership Capital Equity Shares Preference Shares ii) Borrowed Capital Debentures/Bonds Loans and Credits
1.
upon the cost of capital of the firm or the cut off rate which is minimum rate of return expected by the investors. It affects the market price of the shares of the firm. Higher the risk involved in a firm, higher the cost of capital.
Public Issue Right Issue Offer of Sale Private Placement Appointing Underwriter Borrowings
CAPITAL STRUCTURE
Refers to the kinds of securities and its composition and
proportion. The capital structure may be in following forms : a) Equity shares only, b) Equity shares and Preference Shares, c) Equity shares and Debentures, d) Equity shares and Preference Shares and Debentures
CAPITAL BUDGETING
Capital Budgeting is the process of making investment decision
in capital expenditures. Its objectives is to increase the profitability, that can be achieved by the following : a) Increasing revenue b) Reducing cost There are various methods are used for capital budgeting : a) Pay Back Period Method b) Rate of Return Method c) Net Present Value Method d) Internal Rate of Return Method e) Profitability Index Method
DIVIDEND DECISION
Dividend refers to that part of profits of the company
which is distributed by the company among its shareholders. It is the consideration that is given by company for using the funds of investors.
Legal Restrictions ( Transfer of profits to Reserve , as per Companies Act,1956) Magnitude and Trend of Earning Desire and Type of Shareholders Nature of Industry Age of the company Future Financial Requirements Governments Economic Policy Taxation Policy Inflation Control Objectives Requirements of Institutional Investors Stability of Dividends Liquid resourses
the cost of operating the enterprise. For Example -Purchase of raw materials, Payment of wages and other day to day expenses etc. Types : 1.Permanent or Fixed Working Capital 2.Temporary or Variable Working Capital
Determinants of Working Capital
- Same as Slide 13 -
FINANCIAL REPORTING
Financial Reporting is nothing but the presentation of
financial facts relating to the performances and activities of the enterprise. Methods of Reporting: 1. Oral 2. Written 3. Graphic Reporting is made as per the level of management.
LEVELS OF MANAGEMENT
BOARD OF DIRECTORS
MANAGERS
Reporting
SUBORDINATES
following guidelines Reporting of Banking Companies---RBI Reporting of Insurance Companies ---IRDA Reporting of other Corporate ----AS/IAS
FINANCIAL ANALYSIS
Financial Analysis is evaluation and interpretation of
financial data and reports finding out the results thereof. It says about the problems and its reasons, on the basis of which corrective actions are taken. It includes Ratio analysis, Funds flow Statements, Cash Flow Statements, Comparative Statements, Standard Costing and Variances, Budgetary Control etc.
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