Accounting (Financial Modeling) 330

Accounting (Financial Modeling) 330

Introduction

The purpose of this study is to expand the boundaries of our knowledge by exploring some relevant information relating to the business analysis of an Australian listed company.

A working capital budget is a plan to help in financial decision making and also serve to evaluate decisions taken. In finance, an investment is a resource allocation in order to make a profit in the future. These investments correspond to the classification of investments made ??by financial accountants. Investments that are studied in the capital budget may include fixed assets, intangible assets, investments in working capital etc.

The capital budget is related to the entire costs planning process whose returns are expected to be extended beyond one year. Of course, the choice of one year is arbitrary, but it represents a point of convenient reference for distinguishing between different types of expenses. Some obvious examples of capital expenditures are represented by the costs of land, buildings and equipment, as well as permanent additions to working capital related to sales growth. It is also likely that advertising, promotion or a research and development campaign have an effect which exceeds one year, and therefore, these concepts also classified as capital expenditure budget. The capital budgeting decisions should relate to overall planning strategy of company. Inherently, the capital budget requires a commitment to the future. The purchase of an asset with an economic life of 10 years involves a lengthy waiting period before final results are known of such actions. Over a period of 10 years, half turbulent economic and financial environment can cause great uncertainty. The capital budget must be integrated into the strategic planning since excessive or inadequate investment will have serious consequences on the future of company (Allen, 1997). 

A good capital budget is used to determine the chance of asset acquisitions and the quality of the assets purchased. This result is a consequence of the nature of capital goods and their producers. The importance of the capital budget is the expansion of assets which usually involves great expense, before a company spends a great amount of money, should develop appropriate plans. A company wishing to implement a major program of capital expenditure needs to plan financing with several years in advance to ensure that funds are available for expansion. A number of factors combine to commercial budget is perhaps the most important decision of financial management. Moreover, all enterprise departments, production, marketing, etc., are vitally affected by decisions on capital budgets (Baldwin, 1991).

In this paper, the author will perform a working capital budget for a company (JB HIFI). MS Excel financial statement analysis will be used for report where needed to support our discussion of the main findings.

Discussion & Analysis

Forecasting of Working Capital Budget

The same Folio 1 company data is to used to analyse in Folio 2, our budget predictions is for the next two financial years i.e. 2012 and 2013.

In the Excel sheet of Folio 2, we have used the same balance sheet that was used in ...