Amazon Cash Flow and Cash Budget - Case Study Example

Cash Budget for Amazon Sales Budget January February March April May June Department sales £ 300,000 £ 350,000 £ 340,000 £ 350,000 £ 360,000 £ 350,000 Cash realized Cash sales (60%) £ 171,000 £ 199,500 £ 193,800 £ 199,500 £ 205,200 £ 199,500 Received next month (25%) £ 75,000 £ 87,500 £ 85,000 £ 87,500 £ 90,000 Received after two Months £ 30,000 £ 35,000 £ 34,000 £ 35,000 £ 276,000 Total cash received £ 171,000 £ 274,500 £ 587,300 £ 319,500 £ 326,700 £ 324,500 Cash Budget Cash Budget Cash Budget April May June Balance B/d £ 65,000 £ 116,000 £ 144,150 Cash received £ 319,500 £ 326,700 £ 324,500 Tax Rebate £ 45,200 Grants £ 11,000 £ 11,000 Total income £ 384,500 £ 498,900 £ 479,650 Expense Suppliers (2 months credit) £ 180,000 £ 210,000 £ 200,000 New equipment £ 125,000 Department wages £ 16,000 £ 17,000 £ 17,000 Department Overhead £ 60,000 £ 65,000 £ 70,000 Sales commission (2.5%) £ 8,500 £ 8,750 £ 9,000 Bank loan £ 4,000 £ 4,000 £ 4,000 Final dividend £ 50,000 Total cost £ 268,500 £ 354,750 £ 425,000 Balance C/d £ 116,000 £ 144,150 £ 54,650 Analysis of the cash budget Above From the above cash budget Analysis, the closing balances for the month of May are growing eviedent. This is as result of the growth in cash received, that tax rebate as well as the grants received[Rom07]. The closing for the month of June declined because of the partly payment of new equipotent bought on May. Recommendation To better, ensure that the closing balance is growing each year. The company must focus on ensuring that it has an effective cash flow management to finance its daily operations. The company should as well reconsider its debts and creditors control policy to make sure that the debts collection period takes the shortest time possible while creditor’s payment period takes the longest time possible. In doing so, the company will be guaranteed of an effective working capital management and hence, there shall be deficit of cash flow to finance the company’s daily business operations. With regards to capital investment like an Aqusiation of equipment, the company must first ascertain the visibility studies of the new equipment and whether the equipment will realize positive returns within the shortest time possible[Sid02]. If the equation of new equipment is viable, then the company must consider incurring that huge capital investment since, it will guaranteed that the invested capital will realize returns within the shortest time possible. The bank loan should be reduced since, using the bank loan as source of fiancé will be deem costly to the business since, the bank repayment will comprise of principle amount and interest which is considered costly to the business. To better finance the business operations, the company must ensure that it is having an effective capital management, which depict least cost of capital and high value to the firm. The best source of capital for the business is the use of debt and equity capital. Main function of cash budget Short-Term Budgets This budget is important in forecasting the payment that requires immediate finance allotment a well as identification that might help in offsetting this requirement. The short-term budget as well is important in determining the short-term venture that might realize interest whilst the finance is being use. Interim-Term Budgets On the basis of the estiamtin from the interim budget, the manager makes the verdict concerning the annual borrowing need as well as accumulating the acountbale plans. Interim budget as well provide for yearly increment to workers, principal loan as well as insurance payment[Mal58]. It takes the inventory interest accumulation; sales income accrued forward from the past year as well as deposit renewal. Long-Term Budgets These budget support strategic verdict making like capital investment in equipment, business diversification plans as well as the labor forecast costing. On the basis of long-range prediction, the business creates a sustainable cash reserve that aid in executing the plans. The management budgets are derived for the relevant timeframes[Rus97]. These are afterwards managed effectively with the support of the experts. Importance of budget in a system of budgetary control 1. Planning definition Spending plans depend on the all around characterized plans. Spending plans empower the distinctive heads to recognize what is anticipated from them. They know the sum that they are qualified for spend and the pay they are required to procure. Therefore, planning presents a component of definiteness in arranging. 2. Upgraded effectiveness: Planning is a viable method for controlling expenses and taking out wastage. It advances economy and proficiency. 3. Appropriate correspondence: Spending plans are built thinking about input data provided by lower levels of administration. Each division outlines its own particular spending plan in discussion with the departmental staff. Hence, it makes two-path correspondence in the association. 4. Control: Spending plans make administration by exemption conceivable. The examination of real and planned execution will appear feeble spots where administration consideration is required the most[Rus97]. Therefore, planning is a critical system of control. 5. Co-appointment: It advances co-appointment between various offices or divisions of the endeavor. It encourages unified direction of enhanced operations. The spending board goes about as an organizer of generation, deals, and different offices. 6. Assignment of specialist: Planning empowers assignment of expert. It settles the breaking points inside which assigned specialist can be utilized. Subordinates and administrators can practice activity and judgment inside as far as possible. 7. Inspiration: Spending plans go about as a solid motivating force to representatives by settling focuses of execution. 8. Expansion of benefit: It goes for the boost of benefit of the undertaking. To accomplish this point arranging and co-appointment of various capacities is embraced. There is control over costs, income and capital consumptions. The assets are put to ideal utilize. 9. Estimating credit needs: The financial plans of money use and money receipts make it workable for the budgetary administrator to figure their requirement for credit and orchestrate it ahead of time. 10. Uniform strategy: The centralization of budgetary control over all divisions and offices help in completing a uniform approach without the detriments of a tyrant sort of business association. Bibliography Rom07: , (Hinka, 2007), Sid02: , (Kemp, 2002), Mal58: , (Severance, 1958), Rus97: , (Swansburg, 1997), Read More