Chapter 18, Problem 1CC

Summary Introduction

To determine: The way through which long term financial planning support the goal of the financial manager.

Introduction: Financial planning is an ongoing process of devising the course of action that will help in achieving the future goal smoothly.

Answer to Problem 1CC

Solution: The long-term objective of financial management is to help the company maximize its profits. In order to do that, a financial manager needs to focus on smaller, and more specific goals of financial management: planning, cost containment, cash flow management and legal compliance

Explanation of Solution

The goal of the financial manger is to increase the stake of the shareholders in the company. The long term financial planning helps in achieving long term goals of the organization and helps in maintaining and increasing the profits of the company. As the profit increases the stake of the shareholders in the company also increases.

• For example, if a company is Planning to open a new plant so as to increase its production, then it is the job of the financial manager to think and analyze beforehand about whether this project is going to be financially possible or not.

His job is to determine whether they have adequate amount of funds available to finance that new plant or not and if not then what are the sources from where he is going to get the money, he has to evaluate the affect of this new plant on the image of the company. The role of the financial manger is to think beforehand about all this so that when they implement their decisions, they don’t have any problem opening the new factory.

This is long term financial planning, in which financial manager thinks beforehand about the future of the firm in financial terms, so when the time comes they can pass that time smoothly and by earning profit and not by losing it.

Conclusion

Hence, when due to long term financial planning, rise in profit takes place it increase the stake of the shareholders and helps in fulfilling goal of the financial manager.