B.com Notes

Financial planning and its advantage & limitation. *  Financial planning is the task of determining how a business will afford to achieve its strategic goals & objectives . * It create on the basis of vision and objective . *  It establish & maintain a system of financial control governing the allocation and use of fund . * First it establishing objective than create policies and than formulate procedures after that it bring flexibility in three of them to adjust according to situation . --> Advantages of financial planning 1) Cost control * Create annual budgets * Analyse big expenses , reduce them if necessary and monitor them . 2) Cash flow management * Identifying in advance your cash need each month , regardless of your revenues . * Slow pay bales or bad debt when you need money then it raise problem to operate business . 3) Raising financing * raise fund according to need of firm such as short term , medium term , or long term 4)Facilit

Distinguish between traditional and modern approach of finance function and it's type -> Traditional Approach Of Finance Function * Scope is confined to the raising of fund * Narrow sense of procurement of fund * It involves discussion on the financial institution and instrument. * It deals with fund required for merge , liquidation , consolidation , reorganization and so on. * The traditional approach has now been discarded as it suffers from serious criticisms. * The traditional approach was the outsider looking in approach. such as- investor , financial institution , investment banker etc. * Internal financial decision making was completely ignored in this approach .  * It pay attention on infrequent happening like merger , reorganization etc. * Without paying any attention on the day to day financial aspects. * focus on long term financial problems * It ignore the importance of working capital . ->Modern Approach Of Finance Function         * After

Concept of payback period and capital budgeting ->Payback period   * Payback represent the number of year required to recover the original cash out lay invested in a project . *Basis of payback period is the calculation of recovery time *The number of year required to recover the cost of the investment * " Payback period in capital budgeting refers to period of time required to recoup the fund expended in an investment, or to reach the break even point "  *Payback period usually expressed in years. *It measures how long something takes to " pay for itself " *Shorter payback period are more preferable than longer payback period. * It is easy to apply and understand for most individual , regardless of academic training. ->  Construction    *calculate net cash flow   I-  Net cash flow for 1st year = cash inflow of 1st year - cash outflow of 1st year II- Cumulative cash flow =  Net cash flow for 1st year + Net cash flow for 2nd year +