Preparing the Finance or Capital Budget:

Financial or Capital Budget:

                Financial or Capital Budget is the estimates of the total capital disbursement and collection in a projected period of time. The Financial or Capital Budget is also prepared by the business professionals and presented to the directors and approved by the directors. That Capital budget have the details of all the concerned major expenditures and the company planning’s for the possession and management of the fixed and current assets.

Financial Performance:

                Financial performance can be projected or estimates through the capital budgeting. Financial ratios help the management to rank the project according to the projected cash disbursement and cash collections. The ratios helps to find the correlations and effects of the cash allocation to each section of the capital budget like the two main sections assets management and liabilities and equity management. The ratios like liquidity helps the management to find out how the current assets and current liabilities have the relations with each other, working capital shows the uses of daily basis cash in the business for daily operations handling. Solvency ratio helps to find out the percentage affects of if the company declares the solvency of its operations and assets so how they can manage it , same like Net present value present the cash investment present day value, break even presents the point at which the cost and revenue or sales meet at same point and at that point the total investment and total revenue both effects is zero or same.

Information about the Cash activities:

                Capital budget also helps to manage the Cash out flows and Cash Inflows during a projected period of time. With the help of the cash flow statement the company mange the cash receipts and cash disbursement in their operations. The management of liquidity also can be handle due to the capital budget if we cannot manage the business liquidity, the mismanagement leads our business to a point where the business have very low cash to run the daily operations. That is a very disrespecting position for the company to achieve the objectives form the customers and in their operations.

Credit Sales and Purchase Policies:

                Every company also has its own policies regarding credit purchase and sales. They pay some times after a month and get some discounts and sometimes they receive the 50% or 30% cash at source and the remaining after a month or specified period of time.

Information about sources of Cash:       

Capital budgeting is vital to check the all cash collection and receipts figures at a same point and the decisions on this basis for the purchases of new assets for the business and the new financing activities to cover the business needs and to manage the cash of the business.

			Projected Cash Budget for Sample
				January	February	March		Total
Beginning Cash Balance:				4,180.00	4,260.00	4,440.00		12,880.00
Receipt
Collection from Sales:				7,200.00	10,000.00	12,500.00		29,700.00
Total Cash Available:				11,380.00	14,260.00	16,940.00		42,580.00
Payments:
	Purchases:			5,120.00	2,500.00	5,300.00		12,920.00
	Sales Salaries:			1,450.00	1,534.00	2,098.00		5,082.00
	Supplies			440.00	350.00	455.00		1,245.00
	Utilities:			1,200.00	1,100.00	1,200.00		3,500.00
	Administrative Salaries:			3,100.00	3,510.00	3,560.00		10,170.00
	Equipment Purchases:			-	920.00	3,500.00		4,420.00
Total Payments:				1,310.00	9,914.00	16,113.00		37,337.00
Ending Balance:				70.00	4,346.00	827.00		5,243.00

Projected Financial Statements:

                The business projected Income Statement Pro forma is made after all these projected activities combination. The Pro forma means according to the form. The income statement informs us about the acceptable level of income. The Financial ratios which extract form the income statement per form helps the business to make their policies for the future like the rate of return, debt ratio and earnings per share.

 The Statement of Balance Sheet accounts also known as pro forma balance sheet extracts its information from the projected financial or capital budget. Because the information about the cash receivables and cash payments are the part of it.

The Pro forma of Cash Flows is the main source of information for all the cash inflow and outflow activities and tells us about all the three main sources of cash flows activities like the operating activity, investing activity and the financing activity and came in a same pattern under it. The Capital budget also helps us to show us the projected interest rates which are helpful to the company to finance its activities and to invest the capital for the strategic goals on the long term basis.

Conclusion:

                The Capital Budget is always approved by the board of directors due to its importance. Because all the activities which are planned and concerned with the projected year came under it. That’s the reason we easily say that the Capital Budget push us to plan about the Cash and make a Cash budget and them to make the financial statements. When the projected income statement designed the remaining accounts need to be balance in a projected way. At this point the pro forma balance sheet helps the business to balance the remaining accounts. At last stage the Statement of Cash flows design at the projected information basis. That Statement of Cash Flows tells us all about the operating, financing, and investing activities. That all show us that how much the cash business needs for its strategic objectives.