Question

Atithi Ltd. operates eight hotel properties in Maharastra, Rajasthan, Goa and Himachal Pradesh. The company is planning to book rooms for third parties through a unique room chartering business model at strategically identified cultural and religious tourist destinations on a bulk basis in 47 cities and let-out them to tourist during peak seasons. The asset light business model will enhance company profitability. To implement this plan, the financial manager prepared a blue print to raise an amount of Rs 35 crore through issue of debentures as the cost of debt is much lower than ROI. On the basis of the given information about Atithi Ltd., answer the following questions:

(a) Identify the concept of financial management adopted by the finance manager.

(b) State any four significance of the above identified concept for the company to enhance company's profitability.

OR

State whether working capital requirements of business manufacturing the following items are large or small: Justify your statement

(a) Milk

(b) Steel

(c) Room Coolers

(d) Industrial Boilers

(e) Sign boards manufacturing against orders.

Answer 1

(a) Financial Planning

(b) The significance of financial planning can be explained as follows:

(i) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way. In other words, it makes the firm better prepared to face the future.

(ii) It helps in avoiding business shocks and surprises and helps the company in preparing for the future.

(iii) If helps in co-ordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures

(iv) Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.

(v) It tries to link the present with the future.

(vi) It provides a link between investment and financing decisions on a continuous basis.

(vii) By spelling out detailed objectives for various business segments, it makes the evaluation of actual performance easier.

OR

Requirements of working capital for the mentioned business will be:

(a) Milk: Requirements of working capital will be less because it has quick cash turnover.

(b) Steel: Working Capital required for manufacturers will be more as ratio of raw material cost to total cost is more.

(c) Room Coolers: Working Capital required for manufacturers of cooler will be more because it is a seasonal product.

(d) Industrial Boilers: Requirements of working capital for a manufacturers of Industrial boiler will be more because gestation period is more.

(e) Sign Boards: Requirements of working capital for a manufacturers of Sign boards manufactured against specific order is less as it doesn't requires large stock.