A company predicts a 20 per cent growth in its sales, but the growth may turn out to be 10 per cent or 30 per cent. It prepares a blueprint for each case and decides in advance what must be done in each. Which importance of financial planning does this show?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It makes the firm better prepared to face the future.
Option (1) It makes the firm better prepared to face the future. — Correct. Financial planning forecasts what may happen under different situations. A blueprint for each growth rate tells management in advance what to do, so the firm is ready for the future.
Option (2) It helps in co-ordinating the sales and production functions. — Incorrect. Planning co-ordinates functions such as sales and production by giving clear policies and procedures. The company here is preparing for different growth rates.
Option (3) It provides a link between investment and financing decisions. — Incorrect. This means planning keeps investment and financing decisions in step on a continuous basis. The company here is not choosing assets or sources of funds.
Option (4) It makes the evaluation of actual performance easier. — Incorrect. Evaluation becomes easier when planning spells out detailed objectives for each segment. The blueprints here prepare for the future and do not judge results.
NCERT (2026-27 Edition): “Importance … (i) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way. In other words, it makes the firm better prepared to face the future. For example, a growth of 20% in sales is predicted. However, it may happen that the growth rate eventually turns out to be 10% or 30%. Many items of expenses shall be different in these three situations. By preparing a blueprint of these three situations the management may decide what must be done in each of these situations. This preparation of alternative financial plans to meet different situations is clearly of immense help in running the business smoothly.” “Importance … (iii) If helps in co-ordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures. |