Finance Skills for Managers - D076 UNIT 5.pdf

Finance Skills for Managers - D076 UNIT 5 .,/ .,/ .,/ .,/ .,/ .,/ .,/




Cash budgets - correct answer ✔ ✔
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a forecast of future events. They are usually prepared for a sh
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orter time horizon—
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generally between one month and one year, similar to our hous
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ehold budgeting. They are generally used to estimate whether a
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company has a sufficient amount of cash for regular operations
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. In addition, they help companies and individuals to be accoun
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table and make sure that cash is not wasted.
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There are at least three key uses of the cash budget: -
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correct answer ✔ ✔
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indicating future financing needs, providing a basis for correc
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tive action, and providing the data for performance evaluation.
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Future Financing Needs - correct answer ✔ ✔
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the firm can see when its borrowing needs will be highest dur
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ing the year—
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when the firm will have its maximum borrowing need and whe
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,n it can expect to be able to pay down its loan. For small busin
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esses in which cash may be scarce, understanding the company'
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s expected cash position from month to month is crucial. Mana
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gers who understand their cash position well are in a better pos
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ition to negotiate and renew their loans and credit lines because
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they are able to demonstrate when the company will be able to
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repay its borrowings.
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Corrective Action - correct answer ✔ ✔ .,/ .,/ .,/ .,/ .,/


provide a basis for taking corrective action when budgeted an
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d actual figures do not match.
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Performance Evaluation - correct answer ✔ ✔ .,/ .,/ .,/ .,/ .,/


provide a basis for performance evaluation. They contain ma
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nagement's best estimate of the firm's cash flow. Variances fro
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m the budget may indicate that certain managers or divisions ar
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e not meeting targets. This variance may become one aspect of
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that manager's or division's periodic performance evaluation.
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There are six principles of effective budgeting that take all area
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s of budgeting into account. - correct answer ✔ ✔
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Know Yourself .,/



Understand the Key Areas of Savings, Income, and Expenses. .,/ .,/ .,/ .,/ .,/ .,/ .,/ .,/

, Develop Savings, Income, and Expense Strategies.
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Keep Records .,/



Use a Method That Meets Your Needs and Objectives.
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Eliminate Consumer Debt and Minimize Long-Term Debt..,/ .,/ .,/ .,/ .,/ .,/




When evaluating a company's performance, what can variances
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on a company's cash budget indicate? - correct answer ✔ ✔
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Variances show that certain managers or divisions are not me .,/ .,/ .,/ .,/ .,/ .,/ .,/ .,/ .,/


eting targets. .,/




How far into the future do cash budgets usually forecast? -
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correct answer ✔ ✔ Between one month and one year
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What are three principles of budgeting that are important to kn
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ow before beginning the budgeting process? - correct answer
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✔ ✔
Keep records; develop savings, income, and expense strategie
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s; and use a method that meets your needs and objectives
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What are the three main uses of cash budgets? -
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correct answer ✔ ✔
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Cash budgets are used to forecast future financial need, aid in
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