Presented byUsman khurram

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 ?

According to Cohen and Robbins Financial planning should :

1. Determine the financial resources require to meet the company’s operating programme.

2. 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.

3. Develop the best plans to obtain the required external funds.4. Establish and maintain a system of financial control governing

the allocation and use of funds.5. Formulate programmes to provide the most effective profit-

volume-cost relationship.6. Analyse the financial results of operations7. Report facts to the top management and make

recommendations on future operations of the firm

Adequate Funds Flexibility Long-term View Liquidity Optimum use Economy

Simplicity Based on clear-cut Objectives Less Dependence on Outside Sources Flexibility Solvency and Liquidity Cost Profitability

Nature of Industry Standing of the concern Future Plans Availability of Sources General Economic conditions Government Control

Establishing Financial Objectives Formulating Financial Policies Formulating Procedures Providing for flexibility

The finance required for a business can be broadly classified

into two main categories :1. Fixed Capital Requirements, and2. Working Capital Requirements

Estimation of Fixed Assets Requirements

Estimation of Intangible Assets Requirements

Internal Factorsa) Nature of Businessb) Size of Businessc) Activities Undertaken by the Enterprise or Scope of Businessd) Production Techniquese) Mode of acquisition of Fixed assets(Extent of Lease or Hire)f) Acquisition of old Equipment and Plantg) Decision as Regards Ancilliary Unitsh) Availability of Fixed Assets at Concessional Rates

a) International conditions and Economic Outlook

b) Population Trends and its compositionc) Shift in consumer Preferencesd) Competitive factorse) Shift in technologyf) Government Regulations

1. Promotion Expenses2. Incorporation and Organization

Expenses3. Cost of Financing4. Initial Operating losses5. Cost of Acquisition of patents,

Copyrights, Goodwill etc.

1. Nature or character of business2. Size of business/scale of operations3. Production Policy4. Manufacturing process/Length of Production cycle5. Seasonal variations6. Working capital cycle7. Rate of stock turnover8. Credit Policy9. Business cycles10. Rate of Growth of business11. Earning capacity and dividend policy12. Price level changes

A plan is a set out of actions that will be undertaken to 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.

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.

The Financial policies of a corporate mainly are related to the following issues :

1. Sources of Finance 2. Capital Structure decision3. Capital Budgeting4. Dividend Decision 5. Working Capital Management6. Financial Reporting7. Financial Analysis

1. Internal Source Past Accumulated Profit Provisions2. External Source i) Ownership Capital Equity Shares Preference Shares ii) Borrowed Capital Debentures/Bonds Loans and Credits

The cost of capital means cost of obtaining funds.

A decision to invest in a particular project depend 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 IssueRight IssueOffer of SalePrivate PlacementAppointing UnderwriterBorrowings

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 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

Urgency Degree of certainty Intangible factors Legal factors Availability of funds Future earnings Obsolescence Research & Development projects Cost considerations

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.

1. Legal Restrictions ( Transfer of profits to Reserve , as per Companies Act,1956)

2. Magnitude and Trend of Earning3. Desire and Type of Shareholders4. Nature of Industry5. Age of the company6. Future Financial Requirements7. Government’s Economic Policy8. Taxation Policy9. Inflation10. Control Objectives11. Requirements of Institutional Investors12. Stability of Dividends13. Liquid resourses

Stable dividend policy Regular dividend policy Irregular dividend policy No dividend policy

Working capital is the amount of funds necessary to cover 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 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.

Reporting

The Annual Financial Reporting is

made as per following guidelines Reporting of Banking

Companies---RBI Reporting of Insurance Companies

---IRDA Reporting of other Corporate ----

AS/IAS

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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