Chapter11 - Chapter11 ManagerialControl...

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Chapter 11 Managerial Control
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“Wrong” Depends on the Witnesses http://dilbert.com/2009-11-05/
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Health Care Headlines http://www.cnbc.com/ “Medical outsourcing” video “Health tourism”
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Income Statement
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Balance Sheet
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Personal Financial Statement
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Financial Planning Forecasting financial needs Cash flows Revenue & expense forecasts Short and long term helps to address strategy What business are we in? Should we be in it in 5 years? Invest in technology, plant & equipment? Cash available to meet long term obligations? Establishing financial controls
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Financial Planning, cont. Working with the budget process A budget is a financial plan that depends on  the accuracy of the firm’s financial statements Allocates resources, based on revenue  forecasts, throughout the firm Becomes the primary guide for the firm’s  operations & financial needs
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Financial Planning, cont. Capital budget Spending plans for major asset purchases E.g., property, buildings, equipment Cash budget Monthly forecast of inflows and outflows Assist in anticipating borrowing, debt  repayment, operating expenses, and S-T  investments Usually the last budget prepared
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Cash Budget Example
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Financial Planning, cont. Operating (master) budget Ties together all the firm’s other budgets &  summarizes proposed financial activities Generally the most detailed and useful budget  that a firm prepares
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Types of Budgets in Organizations Types of Budget What Budget Shows Financial Budget Sources and Uses of Cash Cash-flow or cash budget All sources of cash income and cash expenditures in monthly, weekly, or daily periods Capital expenditures budget Costs of major assets such as a new plant, machinery, or land Balance sheet budget Forecast of the organization’s assets and liabilities in the event all other budgets are met Operating Budget Planned Operations in Financial Terms Sales or revenue budget Income the organization expects to receive from normal operations Expense budget Anticipated expenses for the organization during the coming time period Profit budget Anticipated differences between sales or revenues and expenses Nonmonetary Budget Planned Operations in Nonfinancial Terms Labor budget Hours of direct labor available for use Space budget Square feet or meters of space available for various functions Production budget Number of units to be produced during the coming time period
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Developing Budgets in Organizations
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The Need for Operating Funds Managing day-to-day needs of the business Payroll, accounts payable Trade off keeping cash as low as possible vs. ability  to pay bills “Pay late & collect early” Access to credit is limited for small firms
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