Question

Financial planning involves

• A. Estimation of capital
• B. Formulation of capital structure
• C. Framing of financial policies
• D. All of these

Hint:

Think of financial planning as creating a complete financial blueprint for the business. This blueprint must answer three questions: How much money do we need? (Estimation), Where will we get it from? (Capital Structure), and How will we manage it? (Policies).

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks to identify the activities that are part of the financial planning process.
Step 2: Key Concept:
Financial planning is the process of determining a firm's financial objectives, formulating policies, and developing procedures to achieve those objectives. It is a comprehensive process that looks at both the short-term and long-term financial needs of the business.
Step 3: Detailed Explanation:
Financial planning is a broad activity that includes several key steps:
- (A) Estimation of capital: The very first step in financial planning is to estimate the total amount of capital required for the business, including both fixed capital for long-term assets and working capital for day-to-day operations.
- (B) Formulation of capital structure: Once the total capital requirement is estimated, the financial planner must decide on the mix of different sources of funds. This involves deciding the proportion of debt and equity, which is known as formulating the capital structure.
- (C) Framing of financial policies: Financial planning also involves establishing clear policies for the administration of finance. This includes policies regarding investment, dividend distribution, management of working capital, and cash control.
Since financial planning is a comprehensive process that includes estimating capital needs, designing the capital structure, and framing financial policies, the correct answer is (D).
Step 4: Final Answer
Financial planning involves the estimation of capital, formulation of capital structure, and framing of financial policies.