Question

What is meant by Financial Planning & Growth? also define short & long term planning?

Answer 1

Financial Planning and Growth-

Financial Planning is a vital part of Financial Management. Planning is the first function of management. Before embarking on any venture, the company must have a plan.

Growth is change in company's earnings, revenue, Or some other measure from one period of time (usually a year) to the next. Growth is an increase in value of an investment over time. Stocks, mutual funds and real estate may all be classified as growth investment, but some stock and mutual funds emphasising growth more than other.

Financial planning helps in making growth and expansion programmes which helps long run survival of the company. Financial planning helps reduces uncertainties with regards to changing market trends which can be faced easily through enough funds.

Some of the objectives of Financial planning are-

• Determining capital requirement.

• Determining capital structure.

• Framing financial policies

• Finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner.

Long term & Short term Planning-

Long term financial planning combines financial forecasting with strategizing. The Government Finance Officer Association (GFOA) view long term financial planning for business as inclusive of the same skill needed for short term planning. The associations recommends paying attention to number of elements to ensure the efficacy of long term financial planning as well. GFOA sees long term financial planning consisting 5 elements, these are "Time, Scope, Frequency, Content and Visibility".

Short term financial planning is most concerned with present. These " plans have a higher degree of certainty compared to long term plans" and tend to be adaptable to a company's current situation. Further, elements of working capital have the largest impact on their short term flows. The examples of working capital element are "raw material, completed products, cash on hand, debtors and creditors".

The main difference between short term & long term finance is the " Timing of cash flows". Usually short term financial decisions are defined as those that involve cash flow within the next 12 morning months. The long therm is usually defined as longer than one year.