Capital Budgeting and Financial Analysis
Review at least 2 academically reviewed articles on capital budgeting and 2 articles on financial analysis and complete the following:
A. Write an annotated bibliography of each article.
B. Based on the articles you reviewed, discuss what you learned
C. In addition, discuss how a manager would use the concepts in the articles you reviewed in managerial decisions.
DISCUSSION 1-D Capital Budgeting and Finance Analysis Annotated Bibliography Articles on Capital Budgeting Gowtham, C., & Peter, M. (2017). Role of capital budgeting in project management. International Journal of Pure and Applied Mathematics, 116(16), 351–355. Budgeting capital seems to be a systematic method used by companies to analyze the advantages of a project. The assessment on whether an investment project should be accepted or denied in the context of a growth initiative of a firm entails calculating the return rate on investment generated by that project. However, other elements special to the organization, such as the projects, affect which rate of returns is considered acceptable or unacceptable. A social or philanthropic initiative, for example, is frequently not authorized depending on a return rate, but more on the aim of a company to generate credibility and contribute towards its society. The budgeting of capital is vital since accountability and measures are developed.
Any firm aiming to put its resources in a project would be regarded culpable by its executives and shareholders without comprehending its risks and rewards. Moreover, if a company doesn’t have a method to measure its investment choice efficacy, it would likely be unable to survive in a competitive market. Companies (excluding non-profits) are there to make a profit (Gowtham & Peter, 2017). Michelon, P. de S., Lunkes, R. J., & Bornia, A. C. (2020). Capital budgeting: a systematic review of the literature. Production, 30. Capital budgeting has been one of the main considerations facing every organization’s financial management. It is a planning process that an organization uses to make evaluative judgments about how investment projects distribute resources and evaluate investment projects that provide advantages over a period of more than a year and help the business generate revenues or decrease future costs. Capital budgeting is a technique to make relatively simple management decisions, like replacing equipment or using more complicated tactics, such as the development of a new facility. In any event, it is important for managers to utilize proper practices in order to make a solid judgment in light of the importance of investment choices. This study adds to the literature by offering a way for researchers to discover budgeting deficiencies in current scientific literature and helps throughout the engineering practice by recognizing the issues faced by engineering managers who intervene with the capital budgeting process (Michelon et al., 2020). Articles on Financial Analysis: Wang, D., & Zhou, F. (2016). The Application of Financial Analysis in Business Management.
Open Journal of Business and Management, 04(03), 471–475. Enterprises face an increasingly complicated environment through the use of financial analysis for company management to economic development. Modern management seems to be a trend for the company. Financial management is a key aspect of enhancing company financial analytical skills. It plays a vital role in improving its fundamental competitiveness. However, this component is still not legitimate enough in China today. In business management, more systematic and thorough knowledge of the company may be achieved by the examination of precise and complete financial indicators. More reasonable, effective, and focused measures for the firm’s sustainable growth may offer beneficial support for right and good judgments and decisions to construct more complete corporate systems and plans. Its application allows companies to develop sustainably (Wang & Zhou, 2016) Szydełko, A., & Biadacz, R. (2016). The role of financial statements in performance management. Modern Management Review, XXI(23). The essay specifically focuses on the potential of employing financial statements as the result of financial accountability, employed as a data source to assist the performance management system. The document includes considerations on traditional approaches for using financial statements throughout the management of performance.
It also provides guidelines for changes in the structure and concepts for compiling financial statements to enhance the value of the data offered in the direction of understanding. The research concludes that specific financial statements can be particularly valuable for performance evaluations in chosen performance management categories. This covers, in particular, multifunctional property resources measurement, the consequences of activity, cash flows (financial action), as well as numerous evaluations and judgments, including effect evaluations, risk factor identification, and threat definition (Szydełko & Biadacz, 2016). Lesson Learned Based on the analysis of the article, I learned about capital budgeting and financial analysis. The overall process of financial analysis involves examining the functioning and appropriateness of firms, assignments, finances, and financial companies. Economic studies usually assess if a substantial entity is reliable, synthetic purifier, fruit juice, and profitable enough to generate a financial investment. The capital budget is a quantitative means for companies to assess any investment project’s financial and economic viability on a long-term basis. Capital budgeting is also crucial to a firm since a defined method is created step by step that allows a firm. Manager’s Perspective In the management decision, a manager can also apply these concepts.
In order to approve or disapprove the project, the budgeting of capital is vital. The budgeting of capital is crucial because of its festive responsibility. Any corporation that seeks to pay for the resources throughout a project would be held irresponsibly by its owners or possibly shareholders without understanding its associated health hazards and dividends. Furthermore, suppose there is no possibility for an organization to gauge the strength of investment selections. In that case, it is possible for the company to have less likelihood of entering the threatening market. DISCUSSION 2- V Capital Budgeting A. Annotated Bibliography Al-Mutairi, A., Naser, K., & Saeid, M. (2018). Capital budgeting practices by nonfinancial companies listed on Kuwait Stock Exchange (KSE). Cogent Economics & Finance, 6(1), 1468232. https://www.cogentoa.com/article/10.1080/23322039.2018.1468232 Capital budgeting is the process where a company has to select the most profitable asset which will give maximum output and returns. Independent projects are just based on NPV decisions.
Projects with positive NPV are accepted, and negative NPV projects are rejected. But the case is not the same for mutually exclusive projects. IRR plays a huge role in project selection, especially in mutually exclusive projects. The most common methods used in capital budgeting are NPV, IRR, payback period, profitability index, accounting rate of return, discounted payback period, profitability index and modified IRR. According to a survey conducted, NPV was the most common method used. It was also found that the size of the organisation also matters a lot while analysing capital budgeting. Larger firms use modified IRR while small firms prefer to use the payback period. Even though modified IRR is very useful but it is not very widely accepted. Discounted capital budgeting also has gained much importance in industries. It is better to know the present value of the investment returns. Graham, P. J., & Sathye, M. (2017). Does national culture impact capital budgeting systems?. Australasian Accounting, Business and Finance Journal, 11(2), 4360. http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1788&context=aabfj Capital budgeting is impacted by national culture on a large scale. Political structure impacts capital budgeting decisions. The countries economy is also related to the capital budgeting decision. This article mainly focuses on how the country and its culture impacts big corporations in taking their decisions. It also shows how Indonesian companies and Australian companies take decisions. Indonesia and Australia both have a huge corruption problem in the country, and many legal laws to be kept in mind.
The economy has promoted new businesses with very stable and strong laws. It also focuses on the individualism culture in Australia and how Australia is the wealthiest country in the Asia-Pacific region. A survey was conducted to draft the article, which I think is the best way to collect samples for our study. The survey is successful when we add samples that are relevant to our data and might help in showing aspects from all directions. A lot of factors were considered during the survey. All obvious factors and some uncertain factors which might impact the capital budgeting decisions are included in the survey. B. Learning Outcomes Capital budgeting is important from a decision-making perspective. Knowing the importance and application of capital budgeting skills is important to make current era decisions. Capital budgeting helps to invest wisely. C. How managers would use concepts in Managerial Decision Making After using all the capital budgeting methods, a manager knows whether the investment is profitable or not. Positive NPV is useful and enough in the case of independent projects, but for mutually exclusive projects, other methods should also be used. It is helpful to know them inside out of the investment and helps us to make logical decisions with all the numbers required to make the decision.
Financial analysis A. Annotated Bibliography Anđelić, S. & Vesic, T. (2017). The importance of financial analysis for business decision making. https://www.researchgate.net/publication/326507701_The_importance_of _financial_analysis_for_business_decision_making#:~:text=Financial%20reports %20represent%20information%20base,accounting%20is%20ex%20post%20orient ed.&text=Financial%20analysis%20is%20used%20to,items%20within%20the%20fi nancial%20statements. This article focuses on how analysis of financial data and statements helps in the decision making process. Financial reporting has done my companies should be true and factual because outsiders use these reports to understand the company. These reports are the only source investors have to analyse and know about the company. Hence, accurate and good financial reporting is very important. The article focuses a lot on the importance of good financial reporting and helps us understand the techniques and process to do so. Financial analysis is a part of all companies, be it small or big. The current financial report helps to take future financial decisions based on these financial reports. The future performance and growth of the company can be determined by analysing current reports. Most business decisions are taken with the help of financial analysis, and investments are made accordingly.
Ratio analysis is a huge part of financial analysis and helps in huge decision making. Financial analysis is given huge importance in the current times, and major business decisions are based on these analyses. Baran, D., Pastýr, A., & Baranová, D. (2016). Financial Analysis of a Selected Company. Research Papers Faculty Of Materials Science And Technology Slovak University Of Technology, 24(37), 73-92. DOI: 10.1515/rput-20160008. https://www.researchgate.net/publication/305076841_Financial_Analysis_of _a_Selected_Company This article shows how financial analysis is required to take business decisions. Usually, during bad times, managers need to brainstorm where are they going wrong and need to make smart decisions and change the financial structure. These decisions are made using financial statements. This article shows how financial analysis is done of any particular company. The financial analysis gives an idea of what is going wrong in the company. Ratios play an important role. Ratios other than market competitors or industry-standard are a reason to worry. The financial analysis gives hints which are a signal for loss or profit. Keeping an eye for such indicators is important. Financial analysis helps us understand all the company situations like bankruptcy, liquidity crisis, net working capital, inventory issues etc.
Understanding how financial ratios and analysis helps in company decisions is important. B. Learning Outcomes The importance of financial analysis has increased in the past few years. It helps the managers to be aware of fraudulent investments and helps the company to grow better. It makes things systematic. After all the analysis, managers have everything right in front of them, and then they know it better whether it’s worth the investment or not. C. How managers would use concepts in Managerial Decision Making A manager has huge decisions to make in the company. Understanding the importance of financial analysis is very important. A manager should know how to implement these decision-making skills. All projects may look good from the outside. But it’s important to understand its real worth. A check on the financial statements is a must. Managers have to take all precautions. These tools are very beneficial as they can prevent a company from making a wrong investment decision. References Al-Mutairi, A., Naser, K., & Saeid, M. (2018). Capital budgeting practices by nonfinancial companies listed on Kuwait Stock Exchange (KSE). Cogent Economics & Finance, 6(1), 1468232. https://www.cogentoa.com/article/10.1080/23322039.2018.1468232 Anđelić, S. & Vesic, T. (2017). The importance of financial analysis for business decision making. https://www.researchgate.net/publication/326507701_The_importance_of_finan cial_analysis_for_business_decision_making#:~:text=Financial%20reports%20represen t%20information%20base,accounting%20is%20ex%20post%20oriented.&text=Financial %20analysis%20is%20used%20to,items%20within%20the%20financial%20statements Baran, D., Pastýr, A., & Baranová, D. (2016). Financial Analysis of a Selected Company.
Research Papers Faculty Of Materials Science And Technology Slovak University Of Technology, 24(37), 73-92. DOI: 10.1515/rput-20160008. https://www.researchgate.net/publication/305076841_Financial_Analysis_of_a_S elected_Company Graham, P. J., & Sathye, M. (2017). Does national culture impact capital budgeting systems?. Australasian Accounting, Business and Finance Journal, 11(2), 4360. http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1788&context=aabfj DISCUSSION 3- Capital Budgeting Bennouna et al. (2010). Improved capital budgeting decision making: evidence from Canada. Retrieved from, https://files.transtutors.com/cdn/uploadassignments/2093294_1_2017-01-13-1444-improved-capital-budgeting.pdf As we all know how useful and how important a budget of the organisation is for the company definitely capital budgeting is one of the important procedures for every organisation which helps the association to understand that situation in the market appropriately so that the management of the organisation can create Strategies and tactics on the situation of the company in the business. In order to make the organisation more successful for long term period the organisation and its way capital budgeting planning in the company’s system so that it would then sure that the product which organisation is launching in the market will impact the organisation for long-term period (Bennouna et al, 2010). Bernardo et al. (2001).
Capital budgeting and compensation with asymmetric information and moral hazard. Retrieved from, http://www.paper.edu.cn/scholar/showpdf/MUj2UN3IMTg0eQxeQh Capital budgeting help the organisation to go product in the market as eventually once the organisation understands the concept of capital budgeting appropriately than definitely it makes the employees of the company understand or the organisation understands the risk involved in various factors which the organisation to in the business as with the help of capital budgeting the employees of the organisation learn about the weaknesses and the challenges which the organisation will face once the association is conducting any kind of investment in a particular property (Bernardo et al, 2001). If I am the manager of the organisation and definitely I will use capital budgeting in many ways which will help the association to a more productive in the market because as a manager it is my responsibility to ensure that the organisation is having a profitable trading the markets and due to this capital budgeting will help me to understand the risks and opportunities which the business is getting in the trade whenever the organisation wants to be more productive as well as effective in the market.
Definitely as manager if I have understood the concept of capital budgeting appropriately than sure it will affect my business and my creativity appropriately which will help the company to be more impactful in the trade. Financial Analysis Corbet et al. (2018). Cryptocurrencies as a Financial Asset: A systematic analysis. Retrieved from, http://www.smallake.kr/wp-content/uploads/2018/05/SSRNid3143122.pdf Financial analysis is not easy to do in the company’s system because it requires proper information and proper data so that it will analyse all that thing appropriately and give the association of proper reports which helps the company to be more effective in the business. The organisation should understand the risk and the various factors involved in the particular activity whenever the organisation is doing a program in the company’s systems and protect these factors the organisation it should be a financial analysis and get appropriate report of it so that the strategy and tactics of the association can be made into it (Corbet et al, 2018). Blake, D. (2000). FINANCIAL MARKET ANALYSIS. Retrieved from, https://vcut.org/kalyd.pdf
There are various factors which are very useful for the association and which the organisation must learn from financial analysis because definitely there are various tools which is highly used by the Association in the market and out of many one of the major tool which organization required is to have a proper knowledge about the investment which the company will do in the trade and therefore financial analysis will help the organisation by giving an appropriate amount of Information and report about a particular factor where is association wants to invest so that the company can make proper decision about whether the organisation wants to invest in a particular factor or not (Blake, 2000). If I am the manager of the company then definitely financial analysis will help me to grow positively in the market because as a manager I will need proper information report about the financial factors which Association conduct in the business and therefore if I am having proper information about the financial reputation of the company in the trade than on the basis of financial analysis I will create a appropriate strategy which will help the association to improve their effectiveness in the market.
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