Contingency Budget Example, Definition And Why It’s Necessary.

Contingency budgets should be important appendices to primary budget estimates, to help navigate a business through changes in a business climate and ease the shift from one level of activity to another

Why Is A Cash Budget Necessary?

It’s no use budgeting for purchases and consumption if during the budget period, you run out of cash. Cash budget is necessary so that any shortage of cash can be known in advance and early preparations can be made to ensure continuous cash flow. Some of the early preparations may be cutting back on spendingContinue reading “Why Is A Cash Budget Necessary?”

What Is Capital Rationing And What Are The Capital Rationing Methods?

Human wants are unlimited but resources are limited. A business with many viable projects as investment opportunities at a particular time will always have a problem of limited funds. So, what should a business with a fixed amount of funds for investment within an accounting period do, when it has many acceptable projects begging forContinue reading “What Is Capital Rationing And What Are The Capital Rationing Methods?”

Investment: How To Calculate The Value Of Convertible Bond.

Investors often face a situation where they have to analyze long term investment opportunities to arrive at the most profitable decision. An opportunity may come when a company goes the route of convertible security to seek long term funds. An investor must determine the value of the convertible security before a choice is made toContinue reading “Investment: How To Calculate The Value Of Convertible Bond.”

How To Determine The Appropriate Accounts Receivable Policy (Formulas and Examples).

Why is accounts receivable policy necessary? Accounts receivable policy is mostly a marketing tool but the financial manager must ensure that its use maximizes profit and return on investment. The financial manager has to ensure that accounts receivable policy is not used to the point it makes credit sales unprofitable. A thorough analysis of costsContinue reading “How To Determine The Appropriate Accounts Receivable Policy (Formulas and Examples).”

Past performance is the best predictor of success – Jim Simons (Ratio Analysis).

The key to a successful investment is a successful analysis of past performance. Financial statements of a business give the most reliable insights into past performance.Financial statements are past performance information and data for measuring solvency, profitability, efficiency, capital structure and yields/earnings of a business. You should be most interested in knowing if the profitabilityContinue reading “Past performance is the best predictor of success – Jim Simons (Ratio Analysis).”

Cash Management – What Is Optimal Cash Balance?

Financial managers are responsible for cash management. This responsibility demands that the financial manager maintains adequate balances of cash and marketable securities. And also see to the efficient operation of cash management at the lowest cost possible. What are cash and marketable securities? Cash is the currency on hand and in the demand deposit (checkingContinue reading “Cash Management – What Is Optimal Cash Balance?”

What Is Degree Of Operating Leverage? (Examples and Spreadsheet).

Operating leverage becomes a reality whenever a company can expand output and sales without a corresponding increase in costs. These circumstances see operating profits directly traceable to production and sale, increase in proportions that are more than increase in sales. Naturally, operating profits shrink in proportions that are more than the decrease in sales whenContinue reading “What Is Degree Of Operating Leverage? (Examples and Spreadsheet).”

Timing Differences Meaning, Example And Spreadsheet.

Often profits per the financial statements and profits on which tax is payable are quite different from each other. There are two reasons for this: The depreciation figure in the profit and loss account may be different by a wide margin from the tax authorities’ figure for ‘capital allowances’ (the way tax authorities’ calculate allowancesContinue reading “Timing Differences Meaning, Example And Spreadsheet.”

How Do You Calculate Service Cost (Service Costing)?

The calculation of the cost of a service with similar service centers or functions and cost units that are an appropriate measure of the service provided is a form of Activity Based Costing (ABC). ABC identifies activitiies which cause costs (known as cost drivers) and puts costs into cost pools. ABC attempts to overcome problemsContinue reading “How Do You Calculate Service Cost (Service Costing)?”