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Why is preparing a financial plan so important? How do financial ratios fit into the preparation...

Why is preparing a financial plan so important? How do financial ratios fit into the preparation of a financial plan?

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Expert Solution

Importance of preparing the financial plan are-

1) Preparing a financial plan helps to effectively manage the income. It helps in understanding how much of money is needed for the tax payments, expenditures etc.

2) Preparing a good financial plan helps to invest you in better options which fits in your budget. By this you can choose the best option to invest that fits in your need, goals etc.

3) Financial planning better guides you in areas like investments, insurance, savings, taxes etc.

4) It becomes easy for making financial decisions and also it helps you to stay on tract and meet your goals.

5) It also helps to plan for your retirement.


Financial ratios fit into the preparation of a financial plan as-

-Financial ratios helps in understanding the financial statements to identify the trends over the time.

-Ratios are also used when lending and investing decisions takes place.

- Cash and the liquidity ratios helps in determining where you can invest by seeing your budget.

-Current ratios also helps in determing the liquidity of your business.

keosha answered 1 year ago
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