Techniques for Capital Investment Decisions, Benefits of Budgeting and Planning, and Corporate Governance Analysis for Balfour Beatty

This report discusses various techniques for investment decisions, benefits of budgeting and planning, and corporate governance analysis for Balfour Beatty. It highlights the distinct roles and responsibilities of shareholders and provides insights on the subject, course code, course name, and college/university if mentioned.

Accounting and Finance
AAF0446

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Using capital investment decision techniques in investment decisions:......................................3
Benefits of budgeting and planning in organizations:.................................................................5
Critical Analysation of corporate governance and highlighting distinct role and responsibilities
of shareholders.............................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting focuses on daily basis inflow and outflow of money in an organization and
finance being a broader term lays emphasis on management of assets and liabilities of the
company and forming plans for its future growth. Balfour Beatty is a United Kingdom based
British multinational infrastructure group that deals in construction services, support services and
infrastructure investments. The gross profit ratio of the company for the year 2020 is 0.73% and
for year 2021 is 1.17%. Balfour Beatty's GP ratio improved in the current year. The net profit
ratio for the two years is 0.34% and 1.68% respectively. Both the GP and NP ratios of the
company improved as compared to the previous year so it can be said that the current financial
position of the company is good. The key resources of the business are financial, physical,
intellectual and human resources. Issues of the company are due to fall in the UK construction
because of the financial crises and decisions by the government to cut public spending. Poor
management decisions impact the strategic direction and cost containment of the firm. The
company needs to implement development in its technology in order to improve the productivity.
This report will discuss various techniques for the investment decisions. Benefits of budgeting
and planning in organizations will also be evaluated. In addition, this report will also analyse the
corporate governance. Distinct role and responsibilities of shareholders will also be highlighted
in the report.
MAIN BODY
Using capital investment decision techniques in investment decisions:
Capital investment decision means taking decision regarding investment of firm's current
assets in building its long term assets to meet an expected flow of benefits over a series of years
most efficiently (Cheng and et.al., 2020). Capital investment decisions are not easy to take for
any company but every company requires to make it. Companies use step by step systematic
approach to determine their capital needs, assessing its ability to invest in a particular capital
project and to decide the best use of resources available in capital expenditures. Capital
investment is also referred to as capital budgeting. It means contribution of company's funds to
acquire capital or long term assets for future growth. Purchase of new equipment, old machinery
being replaced and expanding into new markets or existing operations to provide new facilities
are some examples of capital budgeting (He and et.al., 2019). Capital expenses are different from

revenue or operating expenses. Revenue expenses are those that occurs on regular basis in
business operations while capital expenditures are incurred with the view of business growth and
to produce economic benefits in the future. Establishment of path for business development
requires determining of project needs by the company. Below are the techniques for capital
budgeting.
Payback Period:
Through payback period the length of time required to regain the actual investment money is
calculated. Payback period tells time in number of years the initial amount invested in the capital
project will be recovered. The project with the least payback period is preferred out of all the
projects as it indicates that in a short frame of time the project will pay for itself. This technique
is used in cases where liquidity has majority in priority (Veretekhina and et.al., 2018). Company
with availability of limited funds can allow to undertake a single project at a time, will choose
the project with focus to recover the original investment in smaller time frame to be able to
undertake next project.
Payback period is easy to calculate when the forecast relating cash flow have been
established. Some drawbacks are there in payback period technique. Firstly, it does not consider
the time value of money and simply calculates the payments received in subsequent years. This
type of error violates the fundamental principles of finance. Implementation of a discounted
payback period model eliminates this error. Discounted PB model helps in knowing the payback
period on discounted cash flow basis (Capital Budgeting Basics, 2022). Another common
limitation of PB and discounted PB is that both the approach neglects the cash flows that the end
of project's life. Possibility of requirement of cash investments at the different phases of the
project is another drawback. The life of the asset purchased is also not considered. PB approach
is relevant only when liquidity is considered by the company.
Internal Rate of Return
It is also known as expected rate of return on a project. It is a discounting cash flow approach
that rate of return earned by a project. It is the discounting rate in which total of original cash
outflow and discounted cash inflow is equal to zero. The net present value is equal to zero at this
discounting rate. An increase in discounted rate means that future cash flows will be more
uncertain so it becomes worth less in value. For the IRR calculations the benchmark is rate used
by the company in discounting after tax cash flows. The IRR rule is: IRR > cost of capital =

accept project, IRR < cost of capital = reject project. The advantage of IRR is that with the
reference of a company's capital structure assessment of benchmark figure can be done for each
project. Drawback associated with IRR approach is that though it is easy to calculate it does not
give the addition of value by a project to the firm. It just gives a benchmark based on capital cost
of the firm that makes the project to be selected. Appropriate comparison of mutually exclusive
projects cannot be made based on IRR. It is a valuable measure to evaluate individual capital
budgeting projects.
Net Present Value
It is the most accurate technique of valuation to evaluate various projects and determine the
most profitable project. Net present value method considers the time value of money by using
cost of capital and projects' risk of the company as the base for discount rate used in discounting
future cash flows (Marchioni and Magni, 2018). Drawback of NPV is that firstly it requires
assumption that are accurate for variables like initial cost, future cash flows and the discount rate
or cost of capital. Secondly it cannot be used for comparing differently sized projects.
Capital budgeting is a valuable tool is tool of great importance for the managers as it
provides means to evaluate and measure the value of project in its complete life cycle. It allows
management to review and rank those projects' value or investments' value that need a large
amount of capital investment. Top managers use a technique according to their requirement and
based on the results brought by the used technique most benefited project is selected for
investment. For instance if a company is concerned about the liquidity of the project it can use
payback period technique to evaluate various projects and choose the project that have short
payback period. And company concerned about the time value of can use net present value
technique or approach.
Benefits of budgeting and planning in organizations:
Budgeting means creating spending plan for the business based on the income and
expenses of the business. It provides business organization with an overview of its income and
expenses for better understanding in knowing whether enough money is available with the
organization to pay for its expenses or not. Budgeting enables better preparation and review of
business plans (Allen and et.al., 2020). Budgeting and planning is essential for every
organization.
Planning Oriented

Top line managers tend to deflect from the long term management goals because of the
short term, routine management of the business (Benefits or Advantages of Budgeting to
organization, 2022). Creation of budget forces top management managers to focus on the long
term objectives of the organization. The central idea of budget creation is even though the
company does not achieve it but atleast it thinks about the implementation of improvement in its
activities to enhance the company's competitive and financial position.
Profitability Review
In day to day management of the organization, the point at which the company is
generating or making is most money is overlooked. The formulation of budget in a proper
structure provides organization with the key budget points regarding which unit is making
money and which unit is using the money (Vierlboeck and et.al., 2019). This insists management
to focus on which unit must be closed and which one should be considered expanding in order to
get maximum profits out of that.
Assumptions Review
Preparation of budget makes organizations to evaluate the reason behind its existence in
the industry and what are the key assumptions company draw about its business environment.
This timely evaluation points out the issues that further alters the assumptions of the company
that sometimes may also alter the way of operating decisions of the firm.
Performance Evaluations
Creation of budget also makes the procedure of employee performance evaluation
systematic. Employees goals can be set up in accordance with a budgeting period. At the end of
the budgeting period employee’s actual performance is compared with the budget report to
evaluate the performance (Matějka, Merchant and O'Grady, 2021). This type of performance
evaluation approach is most common when financial goals are to be achieved through
operational goals. Reducing rework rate of the product is an example. This evaluation system is
known as responsibility accounting.
Planning Funds
Budget outlines the amount of cash outflows required for funding the operations. This
information regarding finance requirements is used while taking investment decision. For
instance, decision of whether to invest available cash in long term or short term instruments of
investment.

Cash allocation
Every organization have limited amount of cash that can be invested for fixed assets and
working capital requirements, budgeting process evaluates and suggests the best option available
to invest in. Management may decide to sell off certain assets to have enough money to buy new
ones.
There are various limitations in the process of budgeting.
Not Accurate
Preparation of budget is based on certain assumptions regarding the future the events
these assumptions are generally not too far from the actual operating conditions following with
budget was formulated (Ameen, Ahmed and Abd Hafez, 2018). However, if the business
environment changes to high degree, radical changes take place in company's revenues and
expenses as a result the actual results deflect from the assumptions of the budget to a great
extent.
Unrealistic
This type of scenario takes place in situations of sudden economic decline. The budget
may authorize a certain spending amount that is very unrealistic in current sudden low revenue
generation by the company. The managers will continue to spend the authorized amount of the
budget unless the top managers make needed amendments or alterations in the budget. Following
the budget without implying the changes based on the current business environment will cut off
any possibility of earning profit (Nikodijević, 2021).. Changes in interest rates, currency
exchange rates and commodity prices are some examples in which following budget data would
be unrealistic.
Rigid decision making
Through budgeting process top management only focuses on the formulation of strategy
with budget for the period that ends with the fiscal year. The rest of the year there is no
commitment by the management regarding them revisiting the strategy. If the conditions in the
market changes just after the formulation of the budget completes, there is absence of system that
allows formal review of the situation and apply changes in the budget. This can put company in a
situation to face competition by competitors that are more active.
Time-consuming

Preparing budget cab be very time-consuming especially in an organization that has
unorganized environment (Akhmetshin and et.al., 2018). The time consumed in budgeting
process is low in an organization that uses software and have well-designed procedure of
budgeting. The efforts required in budgeting can be more intense for a company whose business
environment change constantly and repeated work in needed in budget model.
Critical Analysation of corporate governance and highlighting distinct role and responsibilities of
shareholders
Corporate governance is the combination of rules, process and laws through which the
businesses are operated or controlled. This is the term which is considered to be the
encompassing of the internal and external factors of the interests of the company's stakeholders.
These stakeholders include the shareholders, customers, suppliers and government regulators and
management (Aguilera, Marano and Haxhi, 2019). This is known to be the responsibility of
creating the framework of the corporate governance which is considered to be very important for
the organization to align the business with the conduction of the objectives.
This is the process which is considered to be the outline of the corporate governance that
includes the action plans which is considered to be the key measurement of the disclosure of the
practices, execution of the compensatory decisions. It is also the reason which affects the
corporate policies and procedures for the reconciliation of the conflicts of the interest. This is
known for its implicit contracts between the company and the stakeholders.
In Balfour Beatty the corporate governance is considered to be the enforcement of the
structure which works for the benefits of everyone (Danoshana and Ravivathani, 2019). This is
essential for the ethical standards best practices and formal laws of the organization. In addition
to this the bad corporate governance of the business is can face the poor structure, ambiguous
and non-compliant which can be the reason for damaging the image of the organization.
The roles and responsibilities of the shareholders and the board are as follows,
 They have the power to appoint or remove directors and auditors.
 This is the ones who are responsible for adopting, altering and revoking the company's
constitution.
 They are also responsible for the major transactions which take place in the organization.
 Their presence is considered to be very important for the amalgamation of the long form
of the business organization.

 They are known for being the liquidation of the company which helps the business to
bring the organization closer.
Critically it can also be said that the roles and responsibilities of shareholders in this
organization does not include any participation in the data to day management of the company.
This is the considered to be the key aspect of the authority which the company is able to generate
in the management of the organizational operations.
In UK the corporate governance code reporting requirements are under the financial
conduit authority which has listed the rules for all the company which are listed. These principles
of code are either chosen or complied with its provisions (Gerged, 2021). This is helpful for the
organization to consider the corporate governance policies and practices which have a very high
level of transparency that can lead to a more improved level of trust. It is considered to be the
investors in having improved trusts which allows the investors to take or consideration view of
governance related to the company participation. This is also known as the approach that is not
necessarily very fitting for all kinds of companies as they are able to allow the shareholders ways
of considering the explanation. It is also discussing factors of the company where they are
necessary for shareholders (What it means to be a shareholder, 2022). This is helpful for the
consideration and explanation of the unsatisfactory that helps in the appointment of the removing
the directors into the hold of the company account.
This compliance of the explanation approach is considered to be the possible for the
organization in learning the new standards which the business is able to achieve through
legislation. This is also the factor which the company need to report to the shareholder rather
than the regulator for meeting the decision of the company's governance for the adequacy of the
broad meaning of act.
The “comply or explain” nature of this code needs explanation as it is the key to the
departure. This code can achieve effective corporate governance but it requires explanation for
effective transparency. In order to provide full and meaningful explanation for the shareholder
and other stakeholders it is essential for the individuals to understand the necessary achievement.
The effective governance for the company also explains the definition of the period for which it
is important to comply and discuss the rationale for the departure (Paniagua, Rivelles and
Sapena, 2018). Additional information on the constitution of a good explanation in included for
the improving the quality of comply or explain reporting.

A corporate governance is considered to be beneficial for the organization because it has
the following benefits such as the corporate success and economic growth. This is considered to
be the strong corporate governance which is helpful for the maintenance of the confidence which
results in the company raising the capital efficiently and effectively. There are several other
positive impact of the share price which is considered to be the inducement of the owners for
achieving the objectives of the shareholders and the organization. This is considered to be the
key concept which provides the business the essential objectives what are interested in the
shareholder the organization. By using the corporate governance it is important for the business
to minimize the wastage, corruption, risk and mismanagement.
CONCLUSION
With the help of this project it can be concluded that the Balfour Beatty is going to be
successful construction organization with very strong financial performance. This project has
been used for explaining properly the financial position of this organization and provide the
business with brief comments on its management issues and challenges. This is helpful for
meeting the objectives of the market which helps the business in the management of the
resources. In this project the discussion of the capital investment decisions have been considered
as the used investment decision for valuing the financial management of the organization. In this
project the benefits of the budgeting and planning of the organization has been considered for
current thinking and any limitations for the budgeting practices. The corporate governance is the
highlight of the distinct role and responsibilities for the shareholders and the board in relation to
comply or explain governance code reporting requirement has been done.

REFERENCES
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Allen, R. and et.al., 2020. Integrating Infrastructure Planning and Budgeting. Well Spent: How
Strong Infrastructure Governance Can End Waste in Public Investment, p.225.
Ameen, A. M., Ahmed, M. F. and Abd Hafez, M. A., 2018. The impact of management
accounting and how it can be implemented into the organizational culture. Dutch
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Cheng, S. and et.al., 2020, September. Real Options based Investment Decision Making for
Distribution Networks under Long-term Uncertainties. In 2020 12th IEEE PES Asia-
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performance: A study on financial institutions in Sri Lanka. SAARJ Journal on Banking
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Gerged, A.M., 2021. Factors affecting corporate environmental disclosure in emerging markets:
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consistency of rates of return. European Journal of Operational Research. 268(1).
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Matějka, M., Merchant, K. A. and O'Grady, W., 2021. An empirical investigation of beyond
budgeting practices. Journal of Management Accounting Research. 33(2). pp.167-189.
Nikodijević, M., 2021. Implications and challenges of using driver-based budgeting in
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