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Cash Budget Analysis
Simple summary of module 15 cash budget analysis and interpretations
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Analysis and interpretation of Cash budgetsWhy do we analyse and interpretate cash budgets and statements of comprehensive
income?
o To monitor the actual performance against the projected in order to detect
problems early and apply corrective actions
LOAN
How do you know if it’s a good idea to budget for a loan?
Yes No
- Does not put the business in - Business goes into overdraft
overdraft (business has capital) - Generally, the interest on
- Avoids further additional interest overdraft is higher than that of a
as the loan will decrease and loan
therefore the business’s risk will
decrease An overdraft is a short-term loan
- Paying quicker means that the therefore, has a higher interest rate.
bus/comp is abiding by the loan
agreement
Would we be happy with the budgeted results if loan payment was not made?
Yes
- An advantage is that if the loan - Not repaying the loan would
had not been paid the business mean additional interest and
would have a favorable balance possible penalties if the payment
- Show calculations was stipulated in the loan
Eg. Closing bank balance + loan agreement
=X - Bank can repossess assets
X +- surplus/ deficit
=Y
Y +- deficit
= If favorable then it is a good idea to
not pay loan as it avoids a short-term Must look at both the advantages
loan (overdraft) which has a higher and disadvantages that comes with a
interest rate loan repayment
Calculating the loan
1. Int on loan x 12 = Ry (annual interest)
2. Ry ÷ 0, int rate = Loan
Calculating interest on loan if there was a repayment
1. Loan – Repayment = X
2. (X x interest rate) ÷ 12 = interest on loan
What can they do instead of taking out a loan to avoid interest?
o Hire/ rent equipment if they are taking out a loan to pay for equip
o Sell obsolete assets
, SALES
Comment on turnover
Reasons for an increase in turnover? Reasons for a decrease in turnover?
1. Too many sales occurring
2. Too many trade discounts are given
3. Customers are not supporting the
business (ethical reasons?)
4. It is a possibility that a holiday season
just passed. People don’t want to
spend their money
5. Decreasing advertising
Turnover is increasing by Rx on a Turnover is decreasing by Rx (amount) on a
monthly basis monthly basis
- Shows positive growth in the
customer base
What percentage of turnover is being spent on advertising and selling expenses?
Advertsing +Selling
×100
sales
Is their policy successful?
Yes, if sales are increasing on a No if sales are decreasing on a continuous
continuous basis basis (each month)
Working out sales from credit purchases
1. Get the credit sales to 100 if there was a discount
2. Work out COS with the credit percentage
3. Use COS to get Sales
MARK UP
Is the business expected to maintain a fixed mark-up % over the forecast period?
January:
Sales
COS
GP
- Work out mark-up %
GP
Mark up= × 100
cos
February:
Sales
COS
GP
- Work out mark-up %
If mark up across the months are equal therefore there is a fixed mark-up
If not, the business is not maintaining a fixed mark up
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