Consider the following statements about financial planning:
(A) Financial planning usually begins with the preparation of a cash budget.
(B) Financial planning takes into consideration the growth, performance, investments and requirement of funds for a given period.
(C) Long-term financial planning focuses on working capital programmes.
(D) Budgets are examples of the financial planning exercise in greater detail.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B) and (D) only
(A) Financial planning usually begins with the preparation of a cash budget. — Incorrect. It begins with a sales forecast. Cash budgets come at the end, after the fund needs and their sources are worked out.
(B) Financial planning takes into consideration the growth, performance, investments and requirement of funds for a given period. — Correct. Financial planning looks at the firm’s growth, performance, investments and fund needs for a period. In this way it matches the funds required with the funds available.
(C) Long-term financial planning focuses on working capital programmes. — Incorrect. Long-term planning relates to long-term growth and investment. So it focuses on capital expenditure programmes. Short-term planning is done through budgets.
(D) Budgets are examples of the financial planning exercise in greater detail. — Correct. Plans made for one year or less are called budgets. They give a detailed plan of action, so they are financial planning in greater detail.
NCERT (2026-27 Edition): “Financial Planning … Financial planning takes into consideration the growth, performance, investments and requirement of funds for a given period. Financial planning includes both short-term as well as long-term planning. Long-term planning relates to long term growth and investment. It focuses on capital expenditure programmes. Short-term planning covers short-term financial plan called budget. Typically, financial planning is done for three to five years. For longer periods it becomes more difficult and less useful. Plans made for periods of one year or less are termed as budgets. Budgets are example of financial planning exercise in greater details. They include detailed plan of action for a period of one year or less. Financial planning usually begins with the preparation of a sales forecast. Let us suppose a company is making a financial plan for the next five years. It will start with an estimate of the sales which are likely to happen in the next five years. Based on these, the financial statements are prepared keeping in mind the requirement of funds for investment in the fixed capital and working capital. Then the expected profits during the period are estimated so that an idea can be made of how much of the fund requirements can be met internally i.e., through retained earnings (after dividend payouts). This results in an estimation of the requirement for external funds. Further, the sources from which the external funds requirement can be met are identified and cash budgets are made, incorporating these factors.” |