A rights issue provides a way of raising new share capital by means of an offer to existing shareholders, inviting them to subscribe cash for new shares in proportion to their existing holdings.
Temporary Working Capital vs Permanent Working Capital
Sources of Funds
Sourcing finance may be done for a variety of reasons. Traditional areas of need may be for capital asset acquirement - new machinery or the construction of a new building or depot. The development of new products can be enormously costly and here again capital may be required. Normally, such developments are financed internally, whereas capital for the acquisition of machinery may come from external sources.
Financial Management
Financial management is concerned with the maintenance and creation of economic value or wealth/responsibilities and activities of financial managers.
Flexible Budgets
Budgets are usually used to evaluate
performance after the fact, using a process known as variance analysis. Since
some costs are variable with respect to output and some are fixed, changes in
output will automatically lead to increases/decreases in costs absent any input
from managers. Since static budgets reflect planned output rather than actual
output, they are not a good basis of comparison to actual costs.
Budgeted Balance Sheet
Budgeted balance sheet - a
statement of budgeted financial position.
The ending balance in a given account
equals the beginning balance plus any estimated change.
The cash budget provides the ending
cash balance on the balance sheet.
Budgeted Income Statement
The budgeted income statement is
easily generated using information from the previous budgets.
To complete the computation of net
income, an estimate must be made of tax expense.
Advantages and Disadvantages of Budgeting
A realistic budget will motivate action. This may be true, but what is important is that the budgetary control system keeps the organisation fit, monitors its progress and provides an important database in the decision-making-process. The benefits and drawbacks of budgeting.
Marketing and Administrative Costs Budget
The marketing and administrative costs budgeting objective is to estimate the amount of marketing and administrative costs required to:
- Operate the organization at its projected level of sales and production.
- Achieve long-term company goals.
- These estimates are often based on prior period expenditures or planned expenditures, but adjusted for inflation, changes in operations, etc.
Cost of Sales Budget
Computation requires estimates of beginning and ending levels of work-in-process and finished goods inventories.
If WIP levels are assumed to be constant, the calculation reduces to:
If WIP levels are assumed to be constant, the calculation reduces to:
- Estimated cost of sales= Estimated production costs + Budgeted cost of beginning inventory – Budgeted cost of ending inventory
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