Factor Debt Equity

Cost Lowest Highest

High:Bankruptcyandvolatilityof
RisktotheFirm Low
cashflows

High:Majorrestrictionsondecision Low:Fewrestrictionsondecision
ImpactonFlexibility
making making

ImpactonControl Low,unlessfirmisinbankruptcy PotentiallyHigh:Manyowners

Jury method

This approach involves combining the judgments of a group of managers about the forecast. The group
normally would include a variety of concerned and informed managers representing such functioned areas as
marketing, sales, operations, manufacturing, purchasing, accounting, and finance. They each would bring to
the forecast a different background, perspective, and set of biases. Often their judgments would be supported
by background information that might include past data, economic and industry developments, competitive
actions, and relevant news from customers.

Advantages

1. Combine knowledge and expertise from various functional areas

2. Based on reliable , inside opinion
3. Quick and easy to use
4. People who have best information on future developments generate the forecasts

Disadvantge

1. Results depend upon executive skills.

2. All prediction carry equal weight ,which is a problem if some executives predictions are not as
relevant / accurate as others.
3. Expensive
4. No individual responsibility for forecast quality

Delphi Technique

This method, also called the expert survey, is a variation of the jury of executive opinion.
It involves company executives and outside experts such as university professors, consultants, or
industry analysts.
It is based on the assumption that several experts can arrive at a better forecast than one.
In the Delphi method, predictions are made secretly and then averaged together. The results of
the first poll are sent to the experts, who are asked to respond with a second opinion. The process
is repeated until a very narrow, firm median is agreed upon

Advantages:

1. Can prevent social pressure and groupthink

2. Can forecast long-term trend without availability of historical data
3. Can prevent time-consuming discussions or arguments
4. Can gather opinions from those who wont speak out in groups

Disadvantages

1. Takes a lot of time to complete multiple rounds of the process

2. Can be expensive
3. Experts are not accountable for their responses
4. Little evidence that reliable long-term forecasts can be generated with Delphi or other methods
5. .Difficulty getting a panel of experts
Ideation is the creative process of generating, developing, and communicating newideas, where an idea is
understood as a basic element of thought that can be either visual, concrete, or abstract. It involves the
following task which must be carried out in order to come up with creative idea.

1. Swot Analysisidentifying opportunities that can be profitably exploited.

2. Determination Of Objectivesetting up operational goals and objective like cost reduction,
productivity improvement .
3. Creating Good Environment motivating the employee to be more creative and encourages
techniques like brainstorming , group discussion, etc.

Capital budgeting, or investment appraisal, is the planning process used to determine whether an
organization's long term investments such as new machinery, replacement of machinery, new plants, new
products, and research development projects are worth the funding of cash through the firm's capitalization
structure (debt, equity or retained earnings). It is the process of allocating resources for major capital, or
investment, expenditures.[1] One of the primary goals of capital budgeting investments is to increase the
value of the firm to the shareholders.\

Factors of capital budgeting

Availability of Funds
Working Capital
Structure of Capital
Capital Return
Management decisions
Accounting methods
Government policy
Taxation policy

The internal accruals of a business are the accumulation of retained earnings and
depreciation charges.
The depreciation charge is considered an internal source of funds and is a non-cash charge.
Retained earnings may also be described as sacrifices made by the shareholders

The Advantages of internal accruals:

The retained earnings are easily available to the business, requiring no need to consult
its lenders or shareholders.

Control of the business is not weakened when it uses the retained earnings.

Stock markets view retained earnings in a more positive light than equities.
Capital budgeting, or investment appraisal, is the planning process used to determine whether an
organization's long term investments such as new machinery, replacement of machinery, new plants, new
products, and research development projects are worth the funding of cash through the firm's capitalization
structure (debt, equity or retained earnings). It is the process of allocating resources for major capital, or
investment, expenditures.[1] One of the primary goals of capital budgeting investments is to increase the
value of the firm to the shareholders.

Importance of capital budgeting

(a) Capital budgeting has long-term implications:

The most significant reason for which capital budgeting decisions are taken is that it has long-term
implications, i.e. its effects will extend into the future, and will have to be endured for a longer period than
the consequences of current operating expenditure.

b) Capital budgeting requires large amount of funds:

Capital investment decisions require large amount of funds which the majority of the firms cannot provide
since they have scarce capital resources. As a result, the investment decisions must be thoughtful, wise and
correct

C) Capital budgeting is not reversible:

Once the capital budgeting decisions are taken, they are not easily reversible. The reason is that there may
neither be any market for such second-hand capital goods nor there is any possibility of conversion of such
capital assets into other usable assets, i.e., the only remedy is to dispose-off the same sustaining a heavy loss
to the firm.

Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of
finance) refers to an assessment of the viability, stability and profitability of a business, sub-business
or project.

It is performed by professionals who prepare reports using ratios that make use of information taken
from financial statements and other reports. These reports are usually presented to top management as one of
their bases in making business decisions. Financial analysis may determine if a business will:

Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash
flow indicates that a company's liquid assets are increasing, enabling it to settle debts, reinvest in its
business, return money to shareholders, pay expenses and provide a buffer against future financial
challenges. Negative cash flow indicates that a company's liquid assets are decreasing. Net cash flow is
distinguished from net income, which includes accounts receivable and other items for which payment has
not actually been received. Cash flow is used to assess the quality of a company's income, that is, how liquid
it is, which can indicate whether the company is positioned to remain solvent.