''financial planning in organisations''.

Financial planning involves assessing your current financial situation, setting short- and long-term goals, creating a budget, managing debt, investing wisely, planning for retirement, ensuring adequate insurance, and preparing an estate plan. Regularly review and adjust your plan to stay on track with your goals and adapt to any life changes.

1. Objectives financial planning To supply adequate funds to ensure optimum utilization of resources To minimize cost of raising funds To protect the owners against loss of control of the business To provide flexibility in the financial structure To keep financial plan simple and consistent with other objectives

2. Importance of financial planning It integrates the different functional departments It helps to eliminate waste and ensures maximum profitability It ensures adequate supply of funds It reduces uncertainty about the availability of funds It attempts to achieve a balance between the inflow and outflow of funds It serves the basis of financial control It helps reduce the cost of financing It enables the optimum utilization of financial resources It enables to communicate the goals of the top management properly

3. Capital structure is the proportion of debt and equity used for financing the operations of a business. There are two types of long term funds:- Ownership fund(shares…) & borrowed fund(long term loans…) Capital structure refers to the mix or composition of long term sources of funds such as debentures, long term debt, preference share capital , equity share capital and reserves and surplus

4. Features of capital structure Maximum return: The capital structure must give maximum return to its shareholders. Minimum risk: The optimum capital structure should minimize cost and maximize return Flexibility: The capital structure should be flexible to make changes according to changing conditions of the business Control: The capital structure should not involve the loss of control of the share holders Solvency: The capital structure should ensure solvency to the business

5. Capital Gearing Capital gearing is the ratio of equity share capital to the total capitalization. When the proportion of equity to total capitalization is very small, the company said to be High geared . When the proportion of equity to total capitalization is more, the company said to be Low geared.

6. Capital Gearing Company A Company B a Equity Share Capital 500000 1500000 b Debentures 1500000 500000 Total Capitalization 2000000 2000000 Capital Gearing = Equity share capital x 100 Total capitalization 500000 x 100 2000000   = 25% (high geared) 1500000 x 100 2000000   = 75% (low geared)

7. Factors determining capital structure Financial Leverage: The use of debt and preference shares in the capital structure with a view to maximize the earnings per share of equity shareholders is called financial leverage or trading on equity. Cash flow ability for servicing the debt: Servicing of debts means paying of interest and principal amount of loans as and when it is due for payment. Growth and stability of sales: Companies may not face difficulty in meeting its obligations if the sales are fairly stable.

8. Cost of capital: Cost of capital means the minimum return expected by the suppliers of capital. Debt capital is a cheaper source of finance in terms of cost of capital, because, the suppliers expect less return. Nature and Size of the firm : Large scale business depends on debt capital, where as small firms may have to depends on equity capital Control: Equity shareholders have complete control over the affairs of the company. If the company prefers tight control over the company, it includes more debt and preference share capital in the capital structure. If it increases the number of equity shares, the control will be diluted.

9. Flexibility: The capital structure should be flexible enough to raise additional funds without undue delay and cost. Capital Market conditions : The conditions of the capital market determines the kind of shares to be issued Floatation cost: The issue of share or debentures may involve with floatation cost like advertisement, printing, statutory fees, etc. Legal frame work: The structure of capital of a company also depends on legal formalities (Banking Regulation Act,SEBI guide lines etc..).

10. FIXED CAPITAL Fixed capital is that portion of the capital which is invested in fixed assets or long term assets. It is also called as block capital . (E.g. Land & Building, goodwill etc). The money invested in fixed capital is blocked and not available for day to day operations.

11. Fixed capital These are invested for a long term on permanent basis to increase the earning capacity of the businesses Management of fixed capital refers to procurement and allocation of firm’s capital on different assets for a longer period. These decisions are called investment decision or capital budgeting

12. Factors Determining Fixed capital Nature of business : the nature and type of activities determine the volume of fixed capital requirement Mode of acquisition of fixed assets : If the assets are purchased on installment or rent, less fixed capital is required. If it is purchased on cash basis, more fixed capital is required Size and Scale of the business : If the size of the business is large, it will require large amount of fixed capital

13. Factors Determining Fixed capital Production process : The techniques of production process determine the requirement of working capital. Mechanized production process involve larger fixed capital than labor intensive process. Type of manufacturing process : Assembling and service industries require fixed capital. But processing industries require larger fixed capital Type of Products : Companies producing consumer articles require smaller amount of fixed capital than those companies which produces vehicles, machines, etc.

14. Eg:cash , inventories Account receivables and prepaid expenses This may be defined as the excess of current asset over current liabilities.