Financial planning and its elements...

Financial planning and its elements Financial planning is an implement which allows evaluation of the current financial situation of the organization and predicting of its future financial performance. One of the objectives of the financial planning is to determine funds requirements and capital structure in order to understand the financial soundness of the organization. In addition to it, financial planning process helps the organizational management in framing of the financial policies for the control of the cash flow as well as in ensuring that the organization is employing its financial resources in the most efficient manner. Further, the financial planning demonstrates the direction of the organizational activities and analyses how each action has its influence on the financial stability of the organization. Also, financial planning helps the organizational management to make a decision about investments since it shows different ratios (such as equity ratio, debt ratio etc.). These ratios play an important role in the decision making process. Financial plan consists of four elements. These elements are (i) profit and loss projection, (ii) projected balance sheet, (iii) projected cash flow, and (iv) break-even analysis. These four elements are shown in Fig 1. Fig 1 Four elements of financial plan Profit and loss projection Profit and loss projection presents the plan of revenues and expenses of the organization over the specific accounting period. Profit and loss projection follows the same pattern as the profit and loss statement. Nonetheless, it reflects the data about the future. The presentation of the profit and loss statement differs from organization to organization.  However, the basic structure includes the basic five measures namely (i) gross profit, (ii) operating profit or earnings before interest and tax (EBIT), (iii) operating profit or earnings before interest, tax, depreciation and amortization (EBITDA), (iv) profit...

Management of Financial Resources for Sustained Success...

Management of Financial Resources for Sustained Success  Financial resource is a very important resource which an organization needs not only for its functioning  but also for its sustained success. For this purpose the organization need to have systems in place that help it to both fund its ambitions and also to manage its financial resources in support of its daily operations, including funding for improvement activities. Normally financial controls are applied by the management which enable it to take a proactive management position in the business. The three most important financial controls are namely (i) the balance sheet, (ii) the profit and loss statement, and (iii) the cash flow statement. But the management of financial resources is much more than the exercising of the financial controls. The management of the financial resources is an important function of the management in the organization. This financial management starts with the financial planning. Financial planning is a continuous process of directing and allocating financial resources to meet strategic goals and objectives. The output from financial planning normally takes the form of budgets. Financial planning works from the strategic and business plans to identify what financial resources are needed to obtain and develop the resources to achieve the goals in the two types of plans. Typically, financial planning results in very relevant and realistic budgets. Financial planning normally starts at the top of the organization and has basically two components namely (i) planning for operations, and (ii) planning for financing. Operating people focus on production and sales while financial planners are interested in how to finance the operations. Financial planning is the process that encompasses both operations and financing. In a normal organization, typical financial functions within an organization are a host of the accounting activities such as...