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Business Financing and the Capital Structure


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Business Financing and the Capital Structure

Joelann Rousell

Principles of Finance

May 31, 2015

Financial planning involves decisions related to finance, financial requirements of the company. Financial manager has to determine the needs of the funds and available sources for those funds. Financial planning is deciding in advance the funds required for future actions. There are several steps involved in the process of financial planning. These steps are described as follows:- 1. Estimation of fund requirement:-Amount of capital required is determined at this step and in determining the capital need projected statement has to be drawn. Capital is of fixed and fluctuating nature and we need both fixed as well as fluctuating capital to run business. Fixed capital is required for fixed assets, investment in intangible assets and fluctuating capital is required to maintain stock and inventory of the company which is required to carry on operating activities. 2. Determining the sources of funds available:-To finance the above requirement what sources are available with the company has to be determined. Various sources are available like bank loans, raising money through shares, securities, or debt and equity. 3. Choosing the best source of finance:-There are various sources available to the company but according the paying capacity and nature of the company we have to choose the available source. 4. Forecasting the availability of funds or company’s earning capacity:-Next step is to forecast whether the company will be able to earn so much that it will be able to repay the debt raised. 5. Maintaining control system:- Adequate planning for utilisation of funds is necessary and for this we need to keep control n these activities 6. Laying down procedures and manner of utilisation of funds:-Manner of utilisation of funds is to be

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