Q.The process of estimating fund requirements of a business and specifying the sources of funds is called: (A) Capital structure (B) Financial planning (C) Financial management (D) Capital budgeting

The key idea here is Financial Planning — the process of determining how much money a business will need and where that money will come from.

• Step 1: Financial planning involves estimating the total funds required for both short-term operations and long-term investments.
• Step 2: It then specifies the sources of those funds — whether from equity, debt, retained earnings, or other instruments. …

Let’s first understand what each term means in the context of business finance. This is a conceptual question from the Class 12 Business Studies syllabus (or similar introductory finance courses). The key is to match the definition given in the question with the correct term.

Financial planning is the process of estimating the amount of capital a business will need (both short-term and long-term) and deciding where that capital will come from (e.g., equity, debt, retained earnings). It answers two fundamental questions: How much money do we need? and Where will we get it from? That is exactly what the question describes.

Now, let’s look at the other options to see why they don’t fit:

1. Capital structure refers to the mix of debt and equity used to finance the company’s operations. It is a result of financial planning, not the process of estimating needs and sourcing funds. For example, a capital structure might be 60% equity and 40% debt.

2. Financial management is a broader term that includes all decisions related to acquiring, financing, and managing assets to achieve the firm’s objectives. It covers financial planning, capital budgeting, working capital management, and more. So financial planning is a part of financial management, but the question specifically describes the planning process, not the entire field.

3. Capital budgeting is the process of evaluating and selecting long-term investment projects (like buying a new factory or launching a new product). It deals with where to spend money, not where to get it from. …