Question

What is the role of financial planning?

2/ Explain the determinants of sustainable growth rate (SGR).

Answer 1

1. These are the following roles of financial planning-

A. Financial planning helps in proper management of the financial resources of the individual.

B. Financial planning also helps in becoming financial independence and setting goals of becoming financial independence.

C. Financial planning also helps in proactive management of various risk arising in the macro environment.

D. Financial planning also helps in proper comparison with the actual results with the standard results and working on the derivation

E. Financial planning will also be helpful in order to maintain emergency fund which will help the individual in adverse economic situation.

F. Financial planning will also help in achievement of various financial goals in a timely manner.

2. Determinant of sustainable growth rate is comprised of retention rate of profits of the company as well as return on equity of the company

Sustainable growth rate= ( Retention Ratio X Return on Equity)

Retention ratio= (1- Dividend Payout Ratio)

it can be said that whatever retention of earnings has been done by the company will be adjusted with the return on Equity of company.

it will be reflecting the rate of growth of company which will be sustainable for longer period of time.