Arrange the following steps involved in the process of financial planning in logical sequence.
(A) Sales forecast is made
(B) Requirement of fixed capital and working capital is estimated
(C) Expected profits are estimated
(D) Sources of finance are identified
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B), (C), (D)
Step 1 — (A) Sales forecast is made. Financial planning begins with a sales forecast, an estimate of the sales likely in the coming years.
Step 2 — (B) Requirement of fixed capital and working capital is estimated. On the basis of the sales, the firm works out the funds needed for fixed capital and working capital.
Step 3 — (C) Expected profits are estimated. The expected profits show how much of the need can be met from the firm’s own retained earnings. The rest must come from outside.
Step 4 — (D) Sources of finance are identified. Finally, the sources from which the outside funds can be raised are identified.
NCERT (2026-27 Edition): “Financial Planning … 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.” |