Financial planning is the process of allocating financial resources to maximize the profitablity and wealth of the company. Financial planning depends on 3 questions What is company's current financial position? Where does company wants to go? How does the company get to its ending point/goal?

1. 1

2. • Financial planning is the process of allocating
financial resources to maximize the
profitablity and wealth of the company.

3. What is company's current financial position?
Where does company wants to go?
How does the company get to its ending point/goal?

4. • Company managers use financial statement analysis
to understand the company's financial perfomance
and make an assessment of perfomance.
• Financial statement company comprises of:
• INCOME STATEMENT
• BALANCE SHEET
• CASH FLOW STATEMENT.
• Financial statement helps in analysing & identfying
trends & changes in companies financial position.

7. • Financial feasiblity is an analysis
whereby you determine if a particular
venture by taking into account the total
cost of it & probable revenues generated
from it.

8. • CAPITAL STRUCTURE
• CAPITAL BUDGETING
• LIQUIDITY DECISION
• DIVIDEND POLICY

10. FINANCING METHODS
EQUITY
DEBT

11. • Equity shares
• Preference shares
• Internal Accurals

12. • Equity capital represents ownership capital as
equity shareholder collectively own the
company.
• They enjoy the reward & bear the risk of
ownerships.

13. • It is a hybrid of financing- it partakes some
characterstics of equity & some attributes of
debentures.
• Dividend is payable only out of distributable
profits , not an obligatory payment & dividend
rate on preferance capital is usually fixed.

14. • The internal accurals of a firms consists of
depriciation chareges & retained earnings
• DEPRICIATION-
• RETAINED EARNINGS- Retained earnings
are that portion of equity earning which are
ploughed back in the firm.

15. • BONDS
• TERM LOANS
• WORKING CAPITAL ADVANCES
• MISCELLANEOUS RESOURCES

16. • It is a debt security under which issuer owes
the holder of debt & depending on the terms of
bond is obiliged to pay them intrest and/or to
repay the principal at the later date.

17. • FIXED RATE
• FLOATING RATE
• ZERO CUPON BONDS
• HIGH YIELD BONDS
• CONVERTABLE BONDS
• EXCHANGEABLE BONDS
• INFLATION INDEXED BONDS

18. • BEARER BONDS
•GOVERNMENT BOND
•SERIAL BOND
• DUAL CURRENCY BONDS

19. • Loan is a debt provided by one entity to
another entity at an intrest rate, & evidenced
by the notes which specifies among other
things, the principal amount ,intrest rate & date
of repayment.

20. • TERM LOAN
• BANK OVERDRAFT FACILITY
• LETTER OF CREDIT

21. • Working capital advances by commercial
banks represents the most importanr source for
financing current assests.
Working capital advances is provided by banks
in 3 primrary ways:
i) Cash credit overdrafts
ii) Loans
iii) Purchase / discount of bills.

22. • Deferred credit
• Lease & Hire purchase finance
• Unsecured loans & deposits
• Special schemes of institution
• Subsidies & sales tax deferments
• Short term loan from financial institutions
• Commercial paper
• Factoring

24. COST
AVAIL-
ABILTY
CASH
FLOW
THE YIELD
CURVE
TIME
MATU
RITY
RISK
CONT
ROL
SECURITY
&
CONVENTS
COST & EASE
OF ISSUE

25. • ALL CATEGORY COST SHOSUSLD BE
CONSIDERD NOT ONLY IN SHORT RUN
BUT ALSO IN LONG RUN SUCH AS:
• i)Intrest rate ii) NPV iii) ROI iv) Taxation
consideration v) Accounting balance sheet &
stimulation benefit vi) oppourunity costs
vii) BEP
COST COMAPRISION SHOULD BE DONE
B/W METHODS.

26. • If owners are able to generate the sufficent
cash flow then they must use debt financing
.However, if they are engaged in heavy R&D
work are not able to generate sufficent cash
flow then they must opt for equity.

27. • As one of the major constraints time is very
important.
• TIME IS MONEY MONEY IS TIME.

28. • Risk should be kept at the level where the
shareholder and other key shareholder are
content.
• Total Risk = Business Risk + Financial Risk

29. • If debt is to be raised,security may be required.
• CONVENTS-imposes an obiligations on the
company to maintain a certain liquidity level
Availabilty of finance must be considered
when recommending a suitable financial
resource.

30. • Basically duration of financing methods
• Term of finance should match the term of
need.
If debt is raised then there will be no change
control.

31. • Debt is usually cheeper & easier to raise
than equity.
Consideration should be given to time
structure of intrest rate.

32. • Capital Budgeting process by which
organisation evaluates and select long
term investment projects.
• Ex: Purchase or lease of building,
Investments in capital equipment

34. • No. of years needed to recover the intial
capital outlay of a project .
• PBP= INTIAL INVESTMENT
ANNUAL CASH INFLOW
If PBP > Target period ( Accept the proposal)
If PBP < Target period ( Reject the proposal)
If PBP = Target period (Further analysis is
required)

35. • Average cash inflows against unit investment.
• ARR = AVERAGE CASHINFLOW
• INTIAL INVESTMENTS
• If ARR > Target rate ( Accept the proposal)
• If ARR < Target rate ( Reject the proposal)
• If ARR = Target rate ( Further analysis is
required)

36. • It is the difference b/w present value of cash
inflow & present value of cash outflow.
• NPV = PV of cash inflow-PV of cash outflow
• If NPV >0 ( Accept the proposal )
• If NPV < 0 ( Reject the proposal )
• If NPV =0 ( Further analysis is required)

37. • Discount rate @ which NPV = 0
• If IRR > K ( Accept the proposal)
• If IRR< K ( Reject the proposal)
• If IRR = K( Further analysis is required)

39. • The profitability index is the present value of
an anticish inflows divided by the intial
investpated cament.
• PI = PRESENT VALUE OF CASH INFLOW
• PRESENT VALUE OFCASH OUTFLOW

40. Liquidity describes the degree to which an asset
can be quickly bought & sold in the market
without affecting the asset price.
FEW RATIO WHICH HELPS IN MAKING
LIQUIDITY DECISION
1) Quick ratio
2) Current ratio
3) Debtor turnover ratio
4) Creditor turnover ratio

41. • Dividend plicy refers to the policy that
managements formulates in regards to earnings
for distribution as dividend among
shareholders.

42. REGULAR DIVIDEND POLICY
IRREGULAR DIVIDEND POLICY
NO DIVIDEND POLICY