What is Financial Planning? Meaning
Financial planning means to prepare the financial plan. A
financial plan is also called Capital Plan.
A financial plan is an estimate of the total capital
requirements of the company. It selects the most economical sources of finance.
It also tells us how to use this finance profitably. Financial plan gives a
total picture of the future financial activities of the company.
what is financial planning meaning
Financial Planning is the mathematical sum of following
parameters:-
Financial Resources (FR) + Financial Techniques (FT) =
Financial Planning.
A financial plan contains answers to the following
questions:-
How much finance
(short-term, medium-term and long-term) will be required by the company?
From where this
finance will be acquired (gathered)? In other words, what are the sources of
finance? That is, owned capital (promoter contribution, share capital) and
borrowed capital (debentures, loans, overdrafts, etc.).
How the company
will use this acquired finance? That is, application or utilisation of funds.
Financial plan is generally prepared during promotion stage.
It is prepared by the Promoters (entrepreneurs) with the help of experienced
(practising) professionals. The promoters must be very careful while preparing
the financial plan. This is because a bad financial plan will lead to
over-capitalization or under-capitalization. It is very difficult to correct a
bad financial plan. Hence immense care must be taken while preparing a
financial plan.
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