Question

Somnath Ltd. Is engaged in the business of export of garments. In the past, the perfomance of the company had been upto the expectations. In line with the latest technology , the company decided to upgrade its machinery. For this , the finance Manager, Dalmia estimed the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Dalmia therefore began with the preparation of a sales forecast for the next four years. He also collected the relvant data about the profit estimates in the coming years. By doing this , he wanted to be sure about the abailability of funds from the internal soures of the business. for the remaining funds he is trying to find out alternative sources from outside.
Identify the financial concept discussed in the above para. Also state the objectives to be achieved by the use of financial concept, so identified.

Answer 1

Concept :Financial Planning
(i) To ensure availability of funds whenever required.
It involves estimation of the funds required, the time at which these funds are to be made available and sources of these funds.
(ii) To see that the firm does not raise resources unnecessarily.
It ensures that firm does not raise resources unnecessarily as it will increase the costs and the resources sddwill remain idle.