Essay Capital Budgeting, Budgeting and Working Capital Strategies

7918 Words Dec 20th, 2008 32 Pages
Accounting paper

Capital Budgeting, Budgeting and Working Capital Strategies

Due: December 1, 2008

California International Business University, San Diego

Accounting, CIBU 631

Lee White (MBA)

Table of content

1 Introduction 3

2 Background and meaning 4

2.1 Budget 4

3 Capital budgeting 5

3.1 Capital budgeting techniques 7

3.1.1 Net Present Value 7

3.1.2 Payback Period 9

3.1.3 Modified Rate of Return 10

4 Budgeting Process 11

4.1 Analytical Tool 13

4.2 Performance Measures 14

4.3 Business Control Cycle 14

5 Working Capital Strategies 16

5.1 General Electric: Hedge and Swap Strategies 17

5.2 Cisco: Technology obtains best practices in working capital management 18

5.3
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In order to avoid such situations, the analysis requires comprehensive information on the front end; it also requires continual input from several departments or divisions within an organization.
Many companies make the mistake and don’t focus on the integration of these divisions into the process. This may lead to mistakes, miscommunication, and/or poor or incomplete implementation of a capital improvement project.
In order to form or create a capital budget, accountants, controllers and financial officers of an organization should consider three elements:
1. the formation and determination of projects that can be labelled capital enhancement projects;
2. the cost and timeframe for the implementation;
3. and (how to pay) the payment for over time cost.
Some books divide the Capital Budgeting Process into eight steps like you will see in the following graphic. I am only going to talk about the three steps I have mentioned above which basically include all the steps you will see in this chart.
Source: http://www.duncanwil.co.uk/jpg%20files/capbudg1.jpg

Every element needs a thorough analysis if the capital budget created is useful to the organization. An organization's planning division which uses input from different in-house departments, is able to identify capital budget needs in physical terms. A good example would be the

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