FINANCIAL RESOURCES AND DECISIONS

Managing Financial Resources and Decisions

Managing Financial Resources and Decisions

PART A

Cash Budgeting Role in Planning and Decision Making

Cash budgeting is a cumbersome process that takes up considerable management time. Cash budgeting not only concentrates on short-term financial control, but also focuses on the long-term financial planning for the company. The cash budgeting is very comprehensive element of financial planning; company may go for preparing its cash budgets on monthly and annually basis as well (Lasher, 2010). The cash budget analysis of the company provides with the targets and constraints of the company. The accurate interpretation of the cash budget is vital in decision making for planning and decision making. Cash budgeting is a part of the financial planning, which is structured to feature projections on cash inflow and cash outflow of the company for both short-term and long-term (Helfert, 2001). Budgets include the budgeted balance sheet, a cash flow budget which features the flow of company cash position on monthly, quarterly, semi annually and on an annual basis.

Importance of Cash Budgeting in Planning and Decision Making

Importance of cash budgeting includes the following factors that help in determining the effectiveness of the decision making. Cash position directly impact the flow of funds to the and how company structure its capital structure to maintain its liquidity and cover up its financial position (Donald, 2010). With respect to capital management and determining the financing needs, company opts for cash budget planning. Cash budgeting provides following benefits in planning and decision making phases.

Consideration of the future, so that the plans outlined will produce the maximum profit, in accordance with the conditions as they arise.

Ensure the financial liquidity of the company.

Coordination of all activities for planning and decision making purpose.

Establish a control to see if the plans are carried out and determine the direction that takes in relation to the objectives.

Forecasting, planning, organization, coordination or integration, management and control, which include all factors that involve cash movement (Shapiro, 2005).

It helps in determining the need of financing; management can focus on the activities that help in maintaining and extending the financial liquidity position of the company. Cash flow budget can be used to match the flow of revenue and expense. Cash flow budgets project revenue and expense over 12 months. A cash flow budget is helpful when an organization receives cash at different times of the year or must wait for reimbursement associated with services that have already been delivered. A cash flow budget starts with the actual cash balance on the first day of the current fiscal year.

Limitations of Cash Budgeting

The limitations of cash budgeting include the following factors.

Cash budgeting is based on estimation procedures; actual cash flow movement may change significantly based on the market conditions and changes in the cost/revenue structure.

Cash budgeting must be constantly adapted as the significant changes takes place.

Its execution is not automatic; companies need the human element to understand its importance. Cash budgeting is a tool that should not take the place ...