Identify the statements that can be an objective of financial planning.
A. To ensure availability of funds whenever required.
B. See all the items of profit and loss
C. To see the size and composition of fixed assets of the business
D. Break up of long term financing into debt and equity
E. To see the firm does not raise resources unnecessarily
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → A and E only
A. To ensure availability of funds whenever required — An objective of financial planning (Correct). This is the first objective of financial planning.
B. See all the items of profit and loss — Not an objective of financial planning (Incorrect). Financial planning is about estimating and arranging funds. Going through every item of profit and loss is not its objective.
C. To see the size and composition of fixed assets of the business — Not an objective of financial planning (Incorrect). This belongs to the investment decision, which is about how funds are invested in assets.
D. Break up of long term financing into debt and equity — Not an objective of financial planning (Incorrect). This is about the financing decision, which fixes the mix of borrowed and own funds.
E. To see the firm does not raise resources unnecessarily — An objective of financial planning (Correct). This is the second objective of financial planning. Excess funding is almost as bad as inadequate funding.
NCERT (2026-27 Edition): “Financial Planning Financial planning is essentially the preparation of a financial blueprint of an organisation’s future operations. The objective of financial planning is to ensure that enough funds are available at right time. If adequate funds are not available the firm will not be able to honour its commitments and carry out its plans. …” “(a) To ensure availability of funds whenever required: This include a proper estimation of the funds required for different purposes such as for the purchase of longterm assets or to meet day-today expenses of business etc. Apart from this, there is a need to estimate the time at which these funds are to be made available. …” “(b) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.” “Investment Decision A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets.” “Financing Decision … It involves identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds. The shareholders’ funds refer to the equity capital and the retained earnings. Borrowed funds refer to the finance raised through debentures or other forms of debt. A firm has to decide the proportion of funds to be raised from either sources, based on their basic characteristics. …” |