Capital Budgeting, Budgeting and Working Capital Strategies
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 Delphi: Lack of Cash Flow Management. 20
5.4 Singapore Airlines: Importance of Cash Budgeting and Cash Management. 21
6 Analysis of Working Capital Best Practice 24
7 Conclusion 27
1 Introduction
This paper attempts to highlight the importance of capital budgeting, the budgeting process and benchmarking for working capital strategies. Many managers use different techniques in order to identify the right budgeting strategy. The capital budgeting analysis techniques we look at include IRR, NPV, Pay back Period and MIRR, because most managers use more than one method of evaluation. The first part of the report talks about the meaning of budget and capital budgeting. It will define various techniques used in capital budgeting.
The second part will show the budgeting process more detailed. Often budgets are met within a short time and without the intensity it should be. In many cases, managers believe that the process is too long and that it does not really help them to run their departments or business. In this paper I will try to explore the various stages of the budgeting process and evaluate their effectiveness. After that I will have another look at how the role of the budget could be used as an analytic tool in order
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 Delphi: Lack of Cash Flow Management. 20
5.4 Singapore Airlines: Importance of Cash Budgeting and Cash Management. 21
6 Analysis of Working Capital Best Practice 24
7 Conclusion 27
1 Introduction
This paper attempts to highlight the importance of capital budgeting, the budgeting process and benchmarking for working capital strategies. Many managers use different techniques in order to identify the right budgeting strategy. The capital budgeting analysis techniques we look at include IRR, NPV, Pay back Period and MIRR, because most managers use more than one method of evaluation. The first part of the report talks about the meaning of budget and capital budgeting. It will define various techniques used in capital budgeting.
The second part will show the budgeting process more detailed. Often budgets are met within a short time and without the intensity it should be. In many cases, managers believe that the process is too long and that it does not really help them to run their departments or business. In this paper I will try to explore the various stages of the budgeting process and evaluate their effectiveness. After that I will have another look at how the role of the budget could be used as an analytic tool in order
References: [2] Reed, B. and J, Swain. 1990. Public Finance Administration. Englewood Cliffs, NJ: Prentice Hall. [3] Mikesell, J [4] Unknown. (Fall 2002). Budgeting serves as your company’s benchmark. Leading Edge Alliance. Retrieved January 24, 2007 from world wide web: http://www.leadingedgealliance.com/issues_old/2002/fall/budgeting/. [2] CHAN (2004). Use of Capital Budgeting Techniques and an Analytic Approach to Capital Investment Decisions in Canadian Municipal Governments Public Budgeting & Finance / Summer R.M [2] Lazaridis (2004) Capital Budgeting Practices: A Survey in the Firms in Cyprus [3] Peterson, P., & Fabozzi, F. (2002). Capital budgeting. New York: John Wiley & Sons Inc. [4] Marshall, D., McManus, W. & Viele, D. (2004). Accounting: What the numbers mean. 6th ed. NewYork: McGraw-Hill Companies [5] Cingoranelli, D [8] General Electric 2006 Annual Report, (2007) [9] Brealey, R., Myers, S [10] Chambers, J., Letter to Cisco Shareholders (2007), Retrieved January 3, 2007 from the World Wide Web: http://www.cisco.com/web/about/ac49/ac20/about_cisco_annual_reports.html [11] Wahl, A., Cakebread, C [12] Chiou, J.R., Cheng, L., Wu, H.W. (2006), The Determinants of Working Capital Management, Journal of American Academy of Business, Retrieved January 2, 2007 from EBSCOhost database [13] Ross, S [14] Delphi, (2005), Driving Tomorrow 's Technology, Retrieved December 31, 2006 from Mergent database [15] Mergent Online, (2006), Delphi Corp [16] Churchill, D. (2006), Branson bites back, Business Travel World, Retrieved December 30, 2006, from EBSCOhost database [17] Fleischer, (2005), It 's all about business, Finance Week, 19 [18] Carpenter, B., Ellis, L. (2000), Budgeting for the Future: Whey Firms Need to Forecast and Budget Their Flows, National Public Accountant, Retrieved December 30, 2006, from EBSCOhost database Web: