Financial planning means organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
1 – Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
2 – Financial decisions – They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
3 – Dividend decision – The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
(a). – Dividend for shareholders- Dividend and the rate of it has to be decided.
(b). – Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Objectives of Financial Planning –
The financial planning is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-
1- To ensure regular and adequate supply of funds to the concern.
2- To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
3 – To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
4 – To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
5 – To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.