CMA Exam: The Planning & Budgeting Process
There are various types of budgets such as flexible, zero-based, and static. Something “not being in the budget” is a common reason all of us have heard being mentioned at one time or another. A budget is prepared well ahead of the period that it comprises, and it is basically based on historical data, assumptions and forecasts.
However, the budget is not mainly for the sole purpose of limiting what can be accomplished. It is meant to be a guideline, and a planning tool to follow in order to attain an enterprise’s intended objectives and goals.
Planning is the procedure of mapping out the future of an enterprise in an unpredictable and dynamic world to achieve intended goals. Planning comprises of selecting enterprise goals, predicting results under alternative ways of attaining those goals, determining how to achieve the intended goals, and communicating how to achieve the goals to the whole enterprise.
After the implementation of the plans and the budget, as the period emerges, the budget provides both control and feedback. The budgeting process is intimately related to the planning process in an enterprise. Important planning decisions by management are needed prior to the formulation of a budget for a particular period. Moreover, the development of the budget may require some adjustments in previously conceived short-term plans.
CMA Exam: Maximizing Shareholder Wealth
Business managers trying to maximize shareholder wealth are actually trying to enhance the stock price. As the stock price rises, the wealth of the individual who holds the stock increases. Furthermore, when the stock price rises, the value of the enterprise also rises simultaneously.
All commercial enterprises have definite objectives and goals. The topmost objective of all enterprises is to achieve superior performance in comparison with their top competitors. Superior performance guarantees increased company profitability.
When profits are rising, shareholder value will automatically rise. The ultimate goal of a for-profit company is to maximize shareholder value. The shareholders are the owners of a company.
It is the shareholders who provide risk capital with the anticipation that the managers will adhere to strategies that will deliver them an excellent return on their investment. Hence, managers have a responsibility to invest company profits in a manner that maximizes shareholder value.
Achieving and maintaining both profitability, as well as profit growth, is unquestionably one of the biggest challenges for managers today. The main expectations of shareholders are higher profitability and sustainable profit growth.
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