LONG TERM FINANCIAL MANAGEMENT IP

Long term Financial Management IP



Long term Financial Management IP

Incremental Cash flow Statement

The cash budget which is also known as projected cash flow is the budget that shows the forecast of future inflows and outflows of money (cash) of a company, for a period of time.

The importance of cash budget is that it allows us to predict the future availability of cash: whether we will have a deficit or a lack of cash, or if we have a surplus, and, accordingly we make decisions, For example:

If we anticipate that we will have a deficit or will be necessary to have more cash, we can, for example: • apply for financing promptly. • seeking to refinance debt. • Request a trade credit (credit pay for purchases instead of cash) or, in any event claim more credit. • collecting cash and no credit or, in any case, provide a less credit.

If we anticipate that we will have surplus cash, we can, for example: • invest in new machinery or equipment. • invest in buying more merchandise. • invest in business expansion. • Use in investments outside the company, for example, invests in stocks.

On the other hand, the cash budget allows us to know the future site of a project or business: whether the future project or business will be profitable (when future income is higher than future expenses), or whether we will be able to pay promptly a debt.

The cash flows of the company are in negative in 1st and 2nd year because of increase in the costs and expenses. After two years, these cash flows are coming in positive.

It is very common to hear, say or talk about the budget and finances of the company. The budget is a management tool that lets you set a spending and savings plan, means knowing in detail what your income and payments are due from his company, for it is necessary to set deadlines or dates on which the filmmakers better control. The budget allows companies to prioritize and evaluate the achievement of its objectives, and will allow for the development of the company, through comparison of actual expenditure and real disposable cash expenditure and budgeted at a given time this comparison will yield budgetary mistakes and allow you to take measures to correct or improve organizational performance of the company.

In short, the budget ...