Various aspects and role of financial planning in financial management


Aspects of Financial Planning

1. Amount of Capital to be raised. Financial planning anticipates the amount of capital required for the establishment of the enterprise and also for carrying out business operations.

2. Determining the form and proportionate amount of securities to be raised. The financial manager has to take decisions about the capital structure i. e. the amount, type and proportion of different types of funds. He has to decide the ratio between owned and borrowed funds.

3. Laying down policies for administration of capital. It becomes an important duty of financial manager that he should chalk out plan, determine the policy and adopt the strategy to make the best possible utilization of available funds.

Role of Financial Planning in Financial Management

Financial planning refers to the amount of capital and its composition. Financial planning estimates financial requirements and make arrangement for securing the required amount at proper time and place. Significant role of financial planning may be justified on the following grounds.

1. Optimum availability of funds. An intelligent financial plan makes correct estimates of available and prospective funds. Plans are also made to make the best possible utilization of funds. As such the enterprise has not to face the problem of surplus and shortage of funds.

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2. Ensuring coordination between different functional areas of business. Every functional area of the business enterprise needs finance. In order to ensure the co-ordination between different organs of the business, finance can be used as a common link.

3. Effective financial control. Financial planning estimates financial requirement of different functional areas and allocates funds accordingly. It prevents extravagance and effects financial control.

4. Goal of maximization of profits. Some authority feels that the role of financial planning must be profit maximisation. The more quantum of profit is yardstick of operational efficiency.

5. Goal of wealth maximisation. Financial planning should not only confine to profit maximisation but their main thresh should be for wealth maximation it will be suitable to investors and the company.

6. Safety of capital. Financial planning is very useful for capital safety. The fixed Assets are replaced after some time therefore, their replacement planning be given thought.

7. Changing price level. When due to inflation prices are changing very fast. The historical cost Valuation will not serve any purpose as in the present day its cost is not on which it was acquired therefore while preparing financial planning due weight be given to change in price level.


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