BUDGETS & FINANCIAL PLANS

Budgets & Financial Plans

AGL Energy- Budgets & Financial Plans

Introduction

Budgeting and financial plan plays a vital role for effective business plan. Without any prediction or set of objectives, company cannot further analyse the success of company. Budget and financial plan work together and in this paper, I will be discussing how to manage budget and financial plan for AGL Energy.

Discussion

Part 1) Review Cash Budget of AGL Energy

Overview of the Company

AGL Energy an Australian based company that involve in gas and electricity retailing. It is the largest Australian company which has largest investments in gas and electricity supply. This company has currently invested in sustainable energy business in Victoria's High Country which comprises of wind-farm and hydro-electric power station. Company has been listed on S&P/ASX 50 with A$4.8 billion of market capitalization.

Cash budget for AGL Energy

Cash budget or projected cash flow indicates the forecasted future cash inflows and outflows of the company for a period of time. The importance of cash budget is that, company can predict the future availability of cash (whether they will have a deficit or a surplus of cash) and, on that basis, to make decisions regarding the timely request for funding, seek to refinance debt, commercial credit, collect cash and no credit or, in any case, give a lesser credit. If company anticipates the surplus cash flows then invest in new machinery and new equipment, invest in the purchase of more merchandise, invest in business expansion or investments outside the company, for example, invest in stocks.

Moreover, the cash budget allows us to know the future site of a project or business: whether the future project or business will be profitable (when future income is higher than future expenses), or whether we will be able to pay promptly a debt. AGL Energy Budgeted cash flow analysis is based on assumption looking at the Breweries industry trend which primarily produces alcoholic beverages using malted barley and hops. The cash budget is of 12 months shows cash flows over a specified period of time.

Analysis of the Budget

In order to analyse the budget, assumptions has been made with the current figure taken form annual report 2011 and feeded in active data in appendix A. three scenarios has been made which comprises of Base, Aggressive and Conservative where predication has been made which are as followed:

Active

Scenarios

Input Data

Data 2011

Base

Agg

Cons

Forecasted annual sales

$707

$807

$907

$707

Coll. during month of sale

15%

20%

25%

15%

Coll. during 1st mo. after sale

75%

70%

60%

75%

Coll. during 2nd mo. after sale

10%

10%

15%

10%

Discount on first month coll.

1%

2%

3%

1%

Purchases, % next mo's sales

64%

64%

65%

64%

 

Active

Scenarios

Data

Base

Agg

Cons

Manufacturing labour % sales

11%

12%

13%

11%

S&G expenses as % sales

9%

10%

11%

9%

Monthly lease payments

$2

$2

$2

$2

Const cost, new plant (April)

$20

$20

$20

$20

Quarterly tax payment

$2

$2

$2

$2

Initial cash balance

$2

$2

$2

$2

Target cash balance (% sales)

3%

2%

1%

3%

Variance

 

Budget

Actual

Variance

Status

SALES

$707.0

$705.0

$2.0

U

EXPENSE

$452.5

$645.9

-$193.4

U

The above figures shows that AGL Energy sales in 2011 was expected to be AUS$ 707 million, but the actual sales were AUS$ 705.9. The payment was estimated to be 64% of the sales that makes AUS$ 452.5 in the same years, but the payment were AUS$ ...