Optimal Dynamic Capital Budgeting

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A- Articles annotated bibliography Malenko, A. (2019). Optimal dynamic capital budgeting. The Review of Economic Studies, 86(4), 1747-1778. In this article by Malenko (2019), the optimal way of allocating capital in an organization has been brought into focus and how all budgeting is done to achieve the maximum efficiency and return on the investment. It is highlighted in the very beginning that the internal allocation of budgets in the organization for various aspects such as operations, management, human resources, backup, technology, compliance, and emergency procurement. The problem comes in all of this while on different managerial levels as the lower-level managers do not have that much wider and in-depth coverage of the financial standing and conditions of the organization and generally want to spend more on the projects and the other aspects described in the last line. Therefore the article has found that the auditing by the head management or deciding making chairs of the organization is very critical for passing out a plan and allocation of the capital. The author has taken into consideration the aspect of incentive and punishment for the divisional managers after the headquarters auditing process if the report suggested that lower options in expenses were possible. The model has been developed for the same and a budgeting mechanism has been developed in the last in which there is a threshold for financing related separations. This article has provided a framework for streamlining the capital budgeting related problems in the organizations. Vochozka, M., Rowland, Z., & Vrbka, J. (2016). Financial analysis of an average transport company in the Czech Republic. NAŠE MORE: znanstveno-stručni časopis za more i pomorstvo, 63(3 Special Issue), 227-236. In this summary by Vochozka, Rowland & Brbka (2016), a simple financial analysis has been done for the transport company in the Czech Republic and it has been shown that how the budgets and capital allocations actually come into play. Financial Analysis has been pitched as one of the most effective tools or techniques for the determination of the financial conditions and evaluation of the organization’s efficiency. The capital-related strengths and weaknesses can be easily determined by using and applying this tool as guided and presented by the authors here. According to the article, there are three 3 main inputs that are needed in doing a financial analysis of an organization including firstly the balance sheet of a financial year or quarter, secondly, the cash flow statement containing in and out details of the capital, and lastly the profit and loss statement. This article has concluded that there are some fixed evaluation tactics such as ratios of activities, profitability, debt, liquidity and some other comprehensive evaluation methods are there which can be very useful and help in adjusting the future budgeting aspects of the organization. The future potential of the transport industry in the country was projected by analyzing the data with the above techniques and the best practice for maximizing the benefits to the companies and improvement in performance was also formulated and presented as a conclusion. B- Learnings acquired from the articles There are many things that the articles above have furnished and presented here. First of all, the basic concept revolving around capital budgeting has been made clear in the first article and the importance of having an auditing program in the organization has been clearly understood. The second article here was very focused on the financial analysis and all the related inputs that this process need has been elaborated and explained in it which is important to understand after capital budgeting. There is a very key connection between both these topics as capital budgeting prepares the organization for the financial year and guides how to spend and where to look for cost-cutting and lastly the way to gain maximum efficiency in the process (Graham & Sathye, 2017). After the capital budgeting application is finished and the year is done for the organization, financial analysis comes into the picture as it makes it clear that whether the capital budgeting done prior to this year expenditure was successful and accountable or not and whether the company has made profit or loss from that planning. Both topics actually complete each other and work as a duo for complete financial efficiency and set up of the organization as learned from the articles. C- Using these concepts by managers These concepts can be used by the managers in many ways for the decision-making process as the capital budgeting and auditing needs as explained can help him in getting the accurate and exact knowledge of how the allocation can be altered and where to put it as per the need. The concept regarding the financial budgeting will help the managers to evaluate the ratios of financial expenses and the balance sheets upon which he can finalize and decide what all changes are needed to be made to counter the inefficiencies found this time (Warren & Jack, 2018). It will help him to get rid of the shortcomings and take more responsive and quick decisions for generating more value for the organization. In the decision- making aspect, the knowledge harnessed by going through these articles will be finding their use while deciding the budget allocation for the future based on the activities and performance evaluation of the past. References Graham, P. J., & Sathye, M. (2017). Does national culture impact capital budgeting systems?. Australasian Accounting, Business and Finance Journal, 11(2), 43-60. Warren, L., & Jack, L. (2018). The capital budgeting process and the energy trilemma-A strategic conduct analysis. The British Accounting Review, 50(5), 481-496.

 

 

 

 

 

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