Question

Discuss the two objectives of financial planning.

Answer 1

Financial planning refers to estimating the requirements of a business and determining the sources of funds. Financial planning includes both short-term and long-term planning. Objectives of financial planning are:

(i) To ensure availability of funds whenever required if adequate funds are not available, the business unit will not be able to honour its commitments and plans.

(ii) To see that the firm does not raise funds unnecessarily if an excess of funds is available with the business unit; it will unnecessarily add to the cost and may encourage wasteful expenditure and misuse of funds.