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

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