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POWERPOINT PRESENTATION

BYREEBA BEEGAM F

REG.NO:13368005

FINANCIAL PLANNING AND CAPITAL STRUCTURE

FINANCIAL PLANNINGFinancial planning means deciding

in advance the financial activities to be carried on in order to achieve the basic objectives of the firm.

OBJECTIVES OF FINANCIAL PLANNING

To supply adequate funds to ensure optimum utilisation of resources.To minimise cost of funds.To protect owners against the loss of control of the businessTo provide flexibilty in the plan.To keep the financial plan simple.

IMPORTANCE OF FINANCIAL PLANNING

1.It integrates the different functions such as production,marketing etc.

2.It helps management to eliminate waste.

3.It ensures adequate funds from various sources.

4.It reduces the uncertainity.

5.It attempts to achieve a balance between the inflow and outflow of funds.6.It serves as the basis of financial control.7.It helps to reduce the cost of financing.

CAPITAL STRUCTURE

Capital Structure refers to the mix or composition of long term sources of funds such as debentures,long term debt , preference share capital,equity share capital and reserves and surplus.

FEATURES OF CAPITAL STRUCTURE

1.Maximum return2.Minimum risk

3. Flexibility4.Management control

5.Solvency6.Conservatism

FACTORS DETERMINING CAPITAL STRUCTURE

a) FINANCIAL LEVERAGE Financial Leverage is the use of

fixed interest bearing source of funds to enhance the return of equity shareholders. Thus ,it is also called Trading on equity or Capital Gearing.

b)Cash flow ability for servicing the debt

Servicing of debts means paying of interest charges and principal amount of loans as and when it is due for payment.

c)Growth and stability of sales If the sales are expected to remain fairly stable the company can raise a higher level of debt.d)Cost of capital Cost of capital means the minimum return expected by the suppliers of capital.

e)Nature and size of the fi rm Public utility concerns may employ more of debt because of the stability and regularity of their earnings. F) Control While making additional issue of equity shares the control of the existing shareholders should not be diluted.

g)Flexibility Capital Structure should be capable of adjusting according to the changed needs.

h)Capital market conditions If the capital market is in depression fixed interest bearing securities are preferred but in boom period equity shares can be used.

i)Floatation cost It is the incurred for floating securities such as brokerage, underwriting commission, etc on various kinds of securities.

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