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Functions of Money

Ramnath Ltd. ...

Question

Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items in smaller quantities in attractive packages. Performance of the company has been up to the expectations in the past. Keeping up with the latest packaging technology, the company decided to upgrade its machinery. For this, the Finance Manager of the company. Mr. Vikrant Dhull, estimated 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.
Therefore, Mr. Vikrant Dhull began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources. For the remaining funds he is trying to find out alternative sources.
Identify the financial concept discussed in the above paragraph. Also, state any two points of importance of the financial concept, so identified.

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Solution

The financial concept discussed in the paragraph is Financial Planning. Its importance can be highlighted from the following factors:
a. Helps in facing eventual situations: Financial planning helps in forecasting the future situations. In this way, it prepares an organisation to cope with the adverse situations in a better manner.
b. Helps in avoiding surprises and shocks: Through financial planning, an organisation can detect situations of shortage or surplus of funds that may arise in future. Therefore, it prepares the managers in advance for such situations.

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