Financial Management Principles Essay Example | Topics and Well Written Essays - 500 words - 3

Financial Management Principles - Essay Example New plants and equipment will also be needed to supplement the increased sales. Some of the increase in the assets will be financed by spontaneous increase in accounts payable and any shortfall will be financed by external resources such as debt, stocks or a combination of both. The amount of funds needed can be raised using the means depending the â€Å"..current capital structure, conditions in debt and equity market and the restrictions imposed by existing debt agreements (Brigham. 2005)†. The amount of additional funds raised increases the interest payments and/or dividend payments whatever was forecasted earlier. Additional interest payments or dividends are calculated and adjustments are made in the previously forecasted income statement. This adjustment lowers the earnings that were forecasted in the previous statement. Then a second pass of balance sheet is made and again a new change in interest and dividend payment comes up before managers. Then again adjustments are done in income statements. So in the end it becomes a hit and trial like method to come up with forecasted financial statements which are approximately accurate. â€Å"A capital expenditure is and outlay of cash for a project that is expected to produce a cash inflow over a period of time exceeding one year (netmba, 2007)†. Capital Budgeting is a process that requires decisions regarding the investments in financial assets while forecasting of financial statements involves approximation of future financial statements. Hence capital budgeting is a whole p[process of analyzing the projects their cash inflows and outflows and deciding which one is to included in the capital budget and which one is to be rejected. Financial forecasting gives the assessment of how much of assets will be required to carry out operations in future. It also gives an idea of how much of those assets will be