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Financial Analysis and Control Systems - Essay Example

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FINANCIAL ANALYSIS AND CONTROL SYSTEMS Name Institution Date Introduction Working capital management is one of the most significant tasks for all business managers and financial analysts. Business must strike a precise balance amid assets management and liability management for effective perpetual operation (Titman, 2002; p…
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Financial Analysis and Control Systems
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"Financial Analysis and Control Systems"

Importance of Working Capital Management in Budgeting There are various ways of developing working capital and working capital management. These starts with the simple duty of assessing the expenditures, revenue sources and the pending debts on daily, weekly, monthly or yearly basis. It is followed by planning before hand on how to strike a balance between these variables. To provide more cash for working capital management there is need to lower the costs of production whilst putting at level the sales revenue so as to increase the profit margin. Problems related with short term working capital management can be dealt with through trading short term liabilities for non-current liabilities and investing the amount allotted into the generation of revenue to pay off the long term debts (Masoud, 2007; p. 195). Working capital management helps in the process of controlled disbursement during budgeting. The bank which acts as a safe custody of the business is entitled with the mandate of giving a frequent report that gives the amount of disbursement that will be charged to the clients’ accounts. This prior information helps the business to plan accordingly on how the accounts can be executed and the manner in which they can be executed. Management of working capital helps in the process of reconciliation of accounts. ...
Thus the process of reconciliation can be very critical in budgeting providing a benchmark for the business future budgeting and expense estimations. Importance of Working Capital Management in Investment Appraisal Investment appraisal is a type of technique for making decisions putting in mind the cost and the benefit of venturing in the non-current assets in a stated period of time. A business with higher assets investment would find it more efficient to obtain better financing at different levels. Thus the board of directors which is mandated with crucial decisions concerning the business has to find better ways of utilizing the available resources to produce the best outcome. Research reveals that most decisions made by supervised management have a tendency to provide a strong impact on where to cut down on costs of capital for investment which eventually affect the organizational performance (Irala, 2006; p. 214). One of the most vital sources of effective practices of management in a business with high internal financing is the use of debts. Management with efficient knowledge of working capital management has solid facts on how to use debts in its operations to improve on the process of profit generation. Studies also show that some businesses keep the prices of stocks low during initial public offer to help in generation of profits upon the trading of the stocks. Growth of the firm over a period of time owed to the process of effective capital management can be characterized by proper implementation of working capital decisions that enhances profit generation. Application of efficient practices in investment appraisal such as proper analysis of the net Read More
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