Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items in smaller quantities
Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items in smaller quantities in attractive packages. Performance of the company has been up to the expectations in the past. Keeping up with the latest packaging technology, the company decided to upgrade its machinery. For this, the Finance Manager of the company, Mr. Vikrant Dhull, 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.
Therefore, Mr. Vikrant Dhull 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. For the remaining funds he is trying to find out alternative sources. Identify the financial concept discussed in the above paragraph. Also, state any two points of importance of the financial concept, so identified.
1 Answers
Financial planning Importance:
(i) It helps the company to prepare for the future.
(ii) It helps in avoiding business shocks and surprises.
(iii) It helps in coordinating various business functions.
(iv) It helps in reducing waste, duplication of efforts, gaps in planning and confusion.
(v) It links the present with the future.
(vi) It provides a link between investment and financing decisions.
(vii) Financial plan serves as a control technique.
(viii) It serves as a guide in developing a sound capital structure so as to maximize returns to the shareholders.