The idea of value creation is to capitalise on what, as an organisation, you already possess. The organisation may be a business, a school, a corporation, a government department — anywhere, in fact, where the main asset of the company is the people within it. Establishing value creation as a way of life for both managers and workers can help define the role of each more precisely, whilst simultaneously making both feel more integrated and involved within the day to day running of a place of work. Making everyone within an organisation feel that they are more than just ‘cogs in a wheel’ establishes a new feeling of unity and cooperation in organisations and can be a great asset in moving a company or other organisation forward because if everyone feels that they are part of the decision-making process then carrying out the aftermath of those decisions is more likely Continue reading
Financial Management Concepts
Definition of Budgetary Control
Budgetary control is the process of determining various budgeted figures for the enterprise for the future period and then comparing the budgeted figures with the actual performance for calculating variances, if any. It is a continuous process, which helps in planning and coordination. It provides a method of control too. The Institute of Cost and Management Accountants, England defines budgetary control as “the establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy or to provide a basis for its revision”. According to J.A.Scott, “it is the system of management control and accounting in which all operations are forecast and so far as possible planned ahead and the actual results compared with the forecast and planned ones”. Thus, budgetary control involves the following: Establishment of Continue reading
Demand and Supply of Capital for Investments
Demand for Capital The demand schedule for capital refers to the arrangement of the various proposed projects in a descending order according to their estimated rates of return together with required amounts of capital needed by the respective projects. Before analyzing the investments, the management must understand the nature of opportunities. Some investments are complimentary i.e. making one investment implies that another investment will be necessary. Some investments are mutually exclusive i.e. acceptance of one, implies rejection of others and some investments are independent. It is therefore necessary to identify the various opportunities of investments. Alternative investments can be ranked according to their relative profitability. It is also important to distinguish between cost reducing investment and revenue increasing investment. According to W.W. Haynes “any investment decision is profitable if it adds more to revenue than to cost or if it reduces cost more than the revenue.” An important element in Continue reading
Financial Statements Preparation of Not-For-Profit Organizations
Contributions are the primary revenue to a Not-for-Profit Organization (NFPO). Because the NFPO has characteristics which difference with the for-Profit Organization, its accounting method of recording contributions has own standards. Primarily the nonprofit organization must produce three important annual financial statements: the statement of financial position, the statement of operation, and the statement of cash flow. One of the principle differences in nonprofit financial statements compared to for-profit entities is the objective of a nonprofit is to realize its socially desirable goals and objectives for the community it serves, rather than to realize a net profit. Financial statements are important communication information about NFPO to members, contributors and creditors. Financial statements satisfy their and others interested needs, like the financial condition of organizations and how the management has discharged its stewardship responsibility to those that have provided resources to the organizations, especially important as resources are contributed for specific purposes Continue reading
Baumol’s Sales Revenue Maximization Model
Sales maximization model is an alternative model for profit maximization. This model is developed by Prof. Boumol, an American economist. This alternative goal has assumed greater significance in the context of the growth of Oligopolistic firms. Baumol’s sales revenue maximization model highlights that the primary objective of a firm is to maximize its sales rather than profit maximization. It states that the goal of the firm is maximization of sales revenue subject to a minimum profit constraint. The minimum profit constraint is determined by the expectations of the share holders. This is because no company can displease the share holders. “Though businessmen are interested in the scale of their operations partly because they see some connection between scale and profits, I think management’s concern with the level of sales goes considerably further. In my dealings with them I have been struck with the importance the oligopolistic enterprises attach to the Continue reading
Theories of Capitalization
Capitalization is the total amount of a company’s long-term financing. Such financing may include retained earnings, preferred and common stock and other forms of long-term debt (bonds and debentures). Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect. The two main theories of capitalization which are used to determine the amount of capitalization are as follows: 1. Cost Theory of Capitalization According to the cost theory of capitalization, the value of a company is arrived at by adding up the cost of fixed assets like plants, machinery patents, etc., the capital regularly required for the continuous operation of the company (working capital), the cost of establishing business and expenses of promotion. The original outlays on all these items become the basis for calculating the capitalization Continue reading