22173099 Financial Plans and Policies

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    Presented by

    Jagannath Pati

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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 aspects- How much fund is require ?

    When the fund is require ?

    How the fund should be raised ?

    How to use the funds ?

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    DEI!I"I#!According to $ohen and %obbins inancial planning should &

    '. Determine the financial resources require to meet the compan()s operatingprogramme.

    *. orecast the e+tent to which these requirements will be met b( internalgeneration of funds and the e+tent to which the( will be met from e+ternalsources.

    ,. Deelop the best plans to obtain the required e+ternal funds.

    . Establish and maintain a s(stem of financial control goerning the

    allocation and use of funds./. ormulate programmes to proide the most effectie profit-olume-costrelationship.

    0. Anal(se the financial results of operations

    1. %eport facts to the top management and ma2e recommendations on futureoperations of the firm

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    #34E$"I5E6 # I!A!$IA7 87A!Adequate unds

    le+ibilit(

    7ong-term 5iew7iquidit(

    #ptimum use

    Econom(

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    $HA%A$"E%I6"I$698%I!$I87E6 # A

    6#:!D I!A!$IA7 87A!6implicit(

    3ased on clear-cut #b;ecties

    7ess Dependence on #utside 6ourcesle+ibilit(

    6olenc( and 7iquidit(

    $ost8rofitabilit(

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    6"E86 I! I!A!$IA7

    87A!!I!=Establishing inancial #b;ecties

    ormulating inancial 8olicies

    ormulating 8rocedures8roiding for fle+ibilit(

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    E6"I

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    A66E66

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    Internal actors

    a!ature of 3usiness

    b6ize of 3usiness

    c Actiities :nderta2en b( the Enterprise or 6cope of 3usiness

    d8roduction "echniques

    e

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    E+ternal actorsa International conditions and Economic #utloo2

    b 8opulation "rends and its composition

    c 6hift in consumer 8references

    d $ompetitie factors

    e 6hift in technolog(

    f =oernment %egulations

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    E6"I

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    A66E66

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    DIE%E!$E 3E"WEE! 87A!

    A!D 8#7I$A plan is aset out of actions t(at *ill be

    undertaen to a(iee a goal. Plans giediretion to ations and ensure t(at all ationsare moing to*ards stated goals.

    A poli' is a set of guiding principles or rules

    *(i( is framedto in7uene deisions andations in implementation of plan t(at re7etst(e ultimate be(aior of t(e organi"ation.

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    I!A!$IA7 8#7I$IE6Defnition :

    Criteria desribing a orporation8s (oiesregarding its debt,equit' mix& apitalstruture& met(od of 9naning inestmentpro:ets& and (edging deisions *it( a goal ofmaximi"ing t(e alue of t(e 9rm to some setof sto(olders.

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    "he inancial policies of a corporate mainl( are related to the

    following issues &

    '. 6ources of inance

    *. $apital 6tructure decision

    ,. $apital 3udgeting

    . Diidend Decision

    /. Wor2ing $apital

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    6#:%$E6 # I!A!$E

    1. Internal +oure

    Past Aumulated Pro9t

    Proisions

    2. External +oure i;!*ners(ip Capital

    Equit' +(ares

    Preferene +(ares

    ii;5orro*ed Capital

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    $#6" # %AI6I!= :!D9$A8I"A7=(e ost of apital means ost of obtainingfunds.

    A deision to inest in a partiular pro:et

    depend upon t(e ost of apital of t(e 9rm ort(e ut o> rate *(i( is minimum rate ofreturn expeted b' t(e inestors.

    It a>ets t(e maret prie of t(e s(ares of t(e9rm.

    ?ig(er t(e ris inoled in a 9rm& (ig(er t(eost of apital.

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    $A8I"A7 6"%:$":%E%efers to the 2inds of securities and its composition and

    proportion.

    "he capital structure ma( be in following forms &a Equit( shares onl(>

    bEquit( shares and 8reference 6hares>

    c Equit( shares and Debentures>

    dEquit( shares and 8reference 6hares and Debentures

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    $A8I"A7 3:D=E"I!=$apital 3udgeting is the process of ma2ing inestment decisionin capital e+penditures.

    Its ob;ecties is to increase the profitabilit(> that can be achieedb( the following &

    a Increasing reenue b %educing cost"here are arious methods are used for capital budgeting &

    a 8a( 3ac2 8eriod

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    FAC=!R+ INFL@ENCIN) CAPI=AL

    5@

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    DI5IDE!D DE$I6I#!

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    DE"E% as per

    $ompanies Act>'/0*.

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    ='pes of diidend poli'+table diidend poli'

    Regular diidend poli'

    Irregular diidend poli'

    No diidend poli'

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    Wor2ing $apital 8a(ment of

    wages and other da( to da( e+penses etc.

    "(pes &

    '.8ermanent or i+ed Wor2ing $apital

    *."emporar( or 5ariable Wor2ing $apital

    Determinants of Wor2ing $apital

    - 6ame as 6lide ', -

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    I!A!$IA7 %E8#%"I!=Finanial Reporting is not(ing but t(e

    presentation of 9nanial fats relating to t(eperformanes and atiities of t(e enterprise.

    -et(ods of ReportingB

    1. !ral

    2. 0ritten

    #. )rap(iReporting is made as per t(e leel of

    management.

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    LEEL+ !F -ANA)E-EN=

    Reporting

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    .

    =(e Annual Finanial Reporting is made as perfollo*ing guidelines

    Reporting of 5aning CompaniesDDDR5I

    Reporting of Insurane Companies DDDIR

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    FINANCIAL ANAL+I+Finanial Anal'sis is ealuation and

    interpretation of 9nanial data and reports9nding out t(e results t(ereof.

    It sa's about t(e problems and its reasons& ont(e basis of *(i( orretie ations aretaen.

    It inludes Ratio anal'sis& Funds 7o*+tatements& Cas( Flo* +tatements&Comparatie +tatements& +tandard Costingand arianes& 5udgetar' Control et.

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    =?AN

    !@

    .