Budget Practices and Procedures in Africa Essay Sample
- Word count: 1996
- Category: budgeting
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Budget Practices and Procedures in Africa Essay Sample
The overall success of a ship\’s fellowship depends upon its capital budgeting cognitive procedure, so thus capital budgeting should be handled properly because it display the efficiency and financial speciality of a company. Capital budgeting outgrowth is very important in companies because it is used to generate returns and profit to the company and its stakeholders. Capital budgeting is the most important function done by financial managers and it is not only a popular corporate finance topic but one that has been widely researched by academics particularly in International researches.
A capital budgeting task is a decisiveness to make a Johnny Cash outgo to receive hereafter Johnny Cash inflow , therefore stockholder value is created if the present value of hard currency in rate of flow exceeds that of the outlay . J Hall ( 2001) , The importance of the capital budgeting outgrowth for the firm lies in the fact that relatively large amounts of money are committed for a long time thus once the decision is made to embark on a particular project the operation cannot be reversed unless a value destruction decision is taken to salvage what has been invested.
A bit of leg , calculations, evaluation methods and refinements to the capital budgeting process can be used and it is these look of the capital budgeting process that are investigated in this study and the doubt involved in the process. Capital Budgeting process involves the family relationship between a firm\’s initial capital outlay, net cash flows as well as the terminus cash flows.
G Muponda (2007) , Defines capital budgeting as a process which is subjected to cash flows that is determined to certain appraisal technique. A capital expenditure is an expenditure on fixed 1 sense of asset and other long-term infrastructure necessary for the implementation of undertaking. The assets bargain for the project are expected to generate cash flows. The appraisal of capital labour is done in two steps. Firstly, we must determine the cash flows, that are expected to be generated by the project.
Chinamasa (2009.) , “Honorable members will be aware that in the hyperinflationary surroundings characterizing the thriftiness at present, our people are now using multiple currentness for day to day business organisation sphere proceedings , alongside the Southern Rhodesia Dollar sign . These currencies include the South African rand, United State dollar sign bill , Botswana pula, Euro, pound Sterling, among others. In line with the -+prevailing practices by the general public , Government is, therefore, allowing the use of multiple foreign currencies for business transactions, alongside the Zimbabwe dollar. ”
The introduction of the multi-currentness system of rules by the then Acting Minister, Hon Cde Patrick Chinamasa saw a new term of a contract of life in local anesthetic business operations, containment in inflation and a drastic reducing in currency risk greatly associated with the moribund local currency. The new dispensation of the Government of National Unity saw the Christ\’s Resurrection of planning and budget ing which had become almost obsolete in the hyperinflationary saving as the political climate calmed and more horse barn currencies were in use in the transaction process system of the nation.
The era has seen organizations devising out capital expending either to replace outdated equipment usually inherited before the nation’s independence or equipment for enlargement to sports meeting the greater demand for local products. Mine laying houses, organizations in the communicating manufacture and the drinkable sector have been involved in multi-million (US) dollar capital outgo to enhance capacity and realize economic gains in the more stalls environment in compare with past time.
Majuscule budgeting or investment funds appraisal is the planning process used to determine whether house’ long term investments such as new machinery, new plant , new products and research and development projects are worth pursuing. It is a budget for major capital, or investment expenditures of an organization and requires higher accuracy in the decisiveness -making process and involves highest levels of management. Capital budgeting is the most important procedure performed by financial coach since results of investment funds appraisal determination span for years and a firm loses its tractability.
Therefore a firm’s capital budgeting determinations define its strategic focal point as moves into new markets; mathematical product are preceded by capital using up . Therefore tomorrow ’s line sector success depends on investment decisions made today , prospects or prospect of the investment decision which are used to help direction make investment decisions are often inadequate and misleading (J. H. Granville Stanley Hall 2001).
Business organizations are continually faced with the job of deciding whether the commitment of resources i. e. time and money , is worthwhile in terms of the expected benefits. If the expected benefits are likely to accrue over a relatively long term, the solution is more complex and chances of making an incorrect decision increase (Bierman & Smidt 1993). Mobile Telecommunication has an important office to turn Zimbabwe development. The extent of contribution these business building blocks can make towards the growth and development of Zimbabwe is dependent on the level of success attained by their operations.
The fact is that, underlying the success of a business enterprise is the establishment and lotion of controls by the proprietor or direction in plus to the systematic record keeping of business dealings , which at the end of the point , keeps the owner well informed about the carrying out of the business. Furthermore, analysis of capital budgeting is needed so that financial program line will be fairly and consistently describe as a financial performance. Without information and standards, users of financial statements would need to learn the accounting rules of each business, and comparability between the business firm would be difficult.
In Zimbabwe Mobile Telecommunications have dominated on the Zimbabwe Stock Exchange (ZSE) with respect to Econet Tuner Zimbabwe. The head federal agencies are usually located in the CBD.
1 . 2 Statement of the Problem
The selection of cap investiture is one of the most important strategic decisions financial managers of a business firm can make therefore upper-case letter budgeting is one of the most decisive influence on firm value, competitiveness and ultimately, survival of the fittest .
The motivation to undertake this study stems from the better mentality in the land though hinged on the success of the inclusive authorities which has resulted in capital expenditures being undertaken therefore necessitating a critical analysis of the estimation methods in the wireless communications industry, particularly the three service providers Econet Wireless Southern Rhodesia , Net-one and Telecel Republic of Zimbabwe . A manufacture requiring large capital outlay with a vast untapped grocery in Zimbabwe, and high potential for exponential growth, the telecoms industry is on its manna from heaven.
The use of multiple currencies spawned massive investments in the sector as Mobile operators embark on computer program to grow their subscriber base. The industry having endured a decade long of underinvestment as the economic crisis took a toll on the sector, the massive expansion programs have resulted in the increase in the mobile penetration rate to 21. 8 % as of Aug 2009 from ace 4% in February 2009. Mobile penetration rate describes the number of active mobile telephone set of numbers, (usually as a percentage) within a specific population. “The equipment adeptness is valued at US9tercet .
9m. We have not been able to identify a bank or an equipment supplier willing to take the financial and political risk for such a large adroitness to a Zimbabwean company. ” (Econet Chief operating officer , Mr. . Mboweni in response to a question by financial Gazette newsperson , Munyaradzi Mugowo. ) The purpose is to analyze the applicability of investment appraisal proficiency in an environs of high political risk, and bring out restriction in such puppet . Thus the statement, ‘An analysis of capital budgeting process: mobile telecoms sector
1. 3 Research Objectives
To bring out the restriction faced by a financial manager when using investment estimation technique for making working Capital letter using up determination s in environs s of political dubiety . To establish the grandness of capital budgeting. To test the effectiveness of investment appraisal techniques. To determine strategies used by financial managers in the capital budgeting mental process .
1. 4 Research Questions
What are the limitations faced by a financial manager in using appraisal techniques? What strategies are used by financial managers in the capital budgeting process in an environment of uncertainty
What is the effectiveness of investment appraisal techniques in decision making? How significant is the analytic thinking of capital budgeting in the Mobile River industry
1. 5 Research Hypothesis
Ho: A house in an environment of heights uncertainty and endangerment of exposure when assessing composite project uses sophisticated capital budgeting techniques and danger based analysis. ? H1: A house in an environment of high uncertainty and risk when assessing complex projects does not use sophisticated capital budgeting techniques and risk based analysis.
1. 6 Justification of the Study
Extensive enquiry has been carried out under formula economies and on a general spectrum. Very little has been produced on the effects and deduction of the analysis on the telecom industry concern’s capital budgeting. The telecommunication industry is one of the sectors that received the hardest blow of the budgeting process and therefore warrants a further probe into the problem especially considering the fact that the telecommunication sector contributes significantly to the Gross Domestic Mathematical product (GDP ) of the body politic .
This research is going to draw attention of the management on the analysis of the capital budgeting process in the telecommunication industry for planning, organizing as a means of decision making. The work is also designed for evaluation of the analysis
1 . 7 Scope of the Study Econet profit Radio receiver Southern Rhodesia , having made the largest investment into its network of $115m as reported in the interim resultant role for the half year ended 31 August 2009 , including Telecel and Net-one who also have planned expansion projects.
Conceptually the subject field hovers around the implicit office proper analysis psychology of thus capital budgeting and the technique play far as mobile sphere business were in concern in Zimbabwe. The inquiry was limited to Econet Wireless in Zimbabwe due to my docket . The effectiveness of the various capital budgeting techniques were also put into consideration.
1. 8 Research Methodology Inquiry Methodology gives a brief overview that the study intends to employ.
Appropriate theoretical and empirical lesson to be haul from the review of literature will assist shape the methodological analysis . Therefore this division highlights the methods I will use in gathering selective selective information for my research. I will issue out three questionnaires to financial managers in the wireless communications industriousness to get their scene on my topic. I am also going to interview the budgeting staff from Econet Wireless Zimbabwe in order to get views on the analysis of their capital budgeting processes.
I will compare the information I will get from Econet to the information from the other companies in the telecom industry.
1. 9 Literature Review
I will critically review literature from a wide variety of authors in relation to capital budgeting and its analysis to the telecommunication sphere . Capital budgeting methods and conception such as valuation of fixed assets and net value of Cash flows by Du toit, Ray and others will be reviewed so we can understand the analysis to telecom natural action.
1. 10 Chapter Summary
In a sum-up, chapter one gives introduction of the research topic of the analysis of capital budgeting in the mobile telecommunication industry in Zimbabwe. The inquiry is carry out in order to determine the function, constituent , theory and construct of cap budgeting affect the performance of the industry. The research will provide entropy about the budgeting of the Capital of the company assist in the investment decisions. This will be beneficial to companies in the Mobile River telecommunication sector taking into account an psychoanalysis of capital budgeting in reportage investment situations.
Hypothesis would have proven and defined clearly the effectiveness and efficiency of capital budgeting in relation to the performance of Econet Wireless Zimbabwe .