5.Financial Resource Management

Question 1

What are the key components of a balance sheet? Define each component.

Answer 1

• Assets: Resources owned by the company (e.g., cash, inventory).
• Liabilities: Company’s debts or obligations (e.g., loans, payables).
• Owner’s Equity: The residual interest in the assets after deducting liabilities.

Question 2

State the requirements for the implementation of a successful budget.

Answer 2

• Clear organizational structure.
• Effective accounting procedures.
• Management support at all levels.
• Solid feedback and control mechanisms with corrective actions.
• Flexibility to adapt as needs change.

Question 3

What are the key elements of the following budgeting procedures: (a) zero-based budgeting (ZBB), (b) budgeting for total quality management (TQM) and (c)activity-based budgeting (ABB).

Answer 3

• Zero-Based Budgeting (ZBB): Each expense must be justified for each new period.
• TQM Budgeting: Reflects costs related to Total Quality Management efforts.
• Activity-Based Budgeting (ABB): Focuses on business processes, associating costs with activities.

Question 4

What is the purpose of: (a) engineering economic analysis and (b) financial analysis?

Answer 4

• Engineering Economic Analysis: Evaluates investment opportunities using tools like NPV to maximize investment return.
• Financial Analysis: Examines business performance against key factors like liquidity and profitability to determine the viability of projects.

Question 5

Explain the manner by which the contents of business/financial plans can be evaluated.

Answer 5

• Assess clarity, conciseness, and completeness.
• Evaluate based on realistic financial forecasts, ROI, and strategic alignment.
• Consider market analysis, competitive advantage, and management capabilities.

Question 6

What are the key components of a business plan?

Answer 6

• Executive Summary, Company Description, Products/Services.
• Market Analysis, Strategy and Implementation, Management Team.
• Financial Plan including projections, income statements, balance sheets, and cash flow statements.

Question 7

Financial analysis is used to determine whether a given project merits the requested funding. Briefly explain the engineering economic analysis techniques used for the purpose.

Answer 7

Net Present Value (NPV), Return on Investment (ROI), and Internal Rate of Return (IRR) to evaluate the profitability and viability of projects.

Question 8

State the primary funding sources available for financing engineering projects.

Answer 8

• Customer reimbursements based on various factors like time and materials.
• Overhead absorption through costs built into sold goods and services.
• Capital financing through loans, asset sales, share issuance, or past profits.

Question 9

State the alternative funding sources available for financing projects.

Answer 9

1. Investor Money for Shares: People give you money to own a part of your business.
2. Loans for Profit: Borrow money from others who want to make money from interest but don’t want ownership.
3. Convertible Loans: Loans that can turn into ownership shares later.
4. Leasing Assets: Renting things instead of buying them outright.
5. Hire Purchase: Pay over time to eventually own something.
6. Factoring Debtors: Sell owed money for quick cash, letting someone else collect it.