Financial and Asset Management Report: Analyzing Construction Finances

This report delves into the critical aspects of financial and asset management within the construction industry. It begins by emphasizing the significance of positive cash flow for operational activities and project sustainability, explaining how it aids in forecasting and strategic decision-making. The report then explores the importance of liquidity ratios in assessing a company's ability to meet short-term obligations, particularly in the context of construction businesses. A valuation schedule of a M&E contract is presented, along with a corresponding sawtooth diagram to illustrate positive and negative cash flow patterns. The report also examines the importance of depreciation in accounting for asset usage and its implications for stakeholders and tax liabilities. Finally, it highlights the value of asset management plans in monitoring and managing assets to improve productivity, efficiency, and return on investment, with a focus on real estate asset management.

Running head: FINANCIAL AND ASSET MANAGEMENT
Financial and asset management
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Table of Contents

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Answer 2..........................................................................................................................................2
a. The impiortance of positive cash flow in the construction business........................................2
Liquidity ratio and the construction company.................................................................................3
b. Valuation Schedule of M&E contract......................................................................................3
Saw Tooth diagram showing positive and negative cash flow........................................................4
Answer 4..........................................................................................................................................6
a. Why the depreciation is important...........................................................................................6
Benifits.............................................................................................................................................6
b. Why the Asset management plan is important.........................................................................6
Reference.........................................................................................................................................8

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Answer 2
a. The impiortance of positive cash flow in the construction business
The importance of steady fund income or in other way called as positive cash is very
essential in the construction projects. A positive cash fund helps to procure the day to day
business operating activities, material, salaries payment, funding in fresh projects and to finance
into other purposes of the other concerns.
Often the company itself slightly profitable, but not having of ample positive cash flow,
concerned scheme will fall because of the absence of consistent positive funds over the lifespan
of that particular venture. A constructor must assure that a schedule of payment is approved with
the proprietor for reliable cash flow predictions (Mohagheghi, Mousavi and Vahdani 2017).
There are basically two reasons to have positive cash flow in the construction business, first
it will help to to forecast the cash shortfalls and surplus in the near months so accordingly the
company can make a strategic movement.
Second reson is to create a cash flow projection which allows to estimate the effects of
business in the manner of changing events.
Liquidity ratio and the construction company
The liquidity ratio (Hiran 2016) indicates the current cash position within the company,
generally it determines the the ability to pay off the short term obligations by utilizing the
available assets. In most of the cases the construction company holds low liquidity ratio because
the such company does not hold short term asseets or current assets (Yahaya et al 2015) in

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comparison to its liabilities. Their assets always indicates their large investment or projects
which often need some time to convert into sales. Further sales ultimately convert into cash.
b. Valuation Schedule of M&E contract
Valuation
No.
Cumulative
Gross
valuation
Monthly
payment
received
Cumulative
Cost Monthly cost
(3,425,000.00)
1 121,000.00 (3,304,000.00) (3,204,880.00) 111,320.00 (3,039,680.00)
2 280,000.00 (3,024,000.00) (2,933,280.00) 257,600.00 (2,782,080.00)
3 440,000.00 (2,584,000.00) (2,506,480.00) 404,800.00 (2,377,280.00)
4 710,000.00 (1,874,000.00) (1,817,780.00) 653,200.00 (1,724,080.00)
5 1,340,000.00 (534,000.00) (517,980.00) 1,232,800.00 (491,280.00)
6 1,920,000.00 1,386,000.00 1,344,420.00 1,766,400.00 1,275,120.00
7 2,440,000.00 3,826,000.00 3,711,220.00 2,244,800.00 3,519,920.00
8 2,900,000.00 6,726,000.00 6,524,220.00 2,668,000.00 6,187,920.00
9 3,052,000.00 9,778,000.00 9,484,660.00 2,807,840.00 8,995,760.00
10 3,425,000.00 13,203,000.00 12,806,910.00 3,151,000.00 12,146,760.00
Cumulative net valuation
Contract worth 3,425,000.00
Profit Cost
274,000.00 3,151,000.00

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Saw Tooth diagram showing positive and negative cash flow
Below the saw tooth diagram (Hu et al 2016) shows the justified positive cash flow and
negative cash flow as well:
1 2 3 4 5 6 7 8 9 10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Therefore the above evaluation suggest that 5 months the maximum negative cash flow is
during the project.

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Answer 4
a. Why the depreciation is important
Depreciation recognize the exact usage of company’s assets in an accounting period. There
are many different methods of depreciation are accessible for the use of accounting. Here
including some basic elements like historical cost, salvage value and useful life (Srinivas and
Khan 2017).
The importance of charging the depreciation is that companies utilize the depreciation to
report the assets refere to then stakeholders. Depreciation is also decreases the historical value of
assets. A shareholder can view this information and assume when the displacement asset
purchased by the company. For an instance a business concerns often referes a construction
equipment will often displace these substances at the time of its processes while the accumulated
depreciation reaches to historical costs of assets a purchase of replacement may be coming soon.
Benifits
There are several benefits are to be disclosed. Tax benefit are also probable advantages with the
depreciation. However the depreciation signifies a non cash expenses on the “income statement”
it reduces the net income of company, therefore the lesser net income will incurr the smaller tax
liability.
b. Why the Asset management plan is important
Asset management is considerably important because it helps a company to monitor and
manage their assets using the systemized process. The effective management of it can give a

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result of improvement of the productivity and efficiency which place the business in a better
position. It will help to increase the return on investment.
Buidings, plant and machinery and equipments tools, in short which is tangibile that can be
managed at a one point. Having refere to this one of the most important tool is “Real Estate asset
management” (Haynes, Nunnington and Eccles 2017). It recognize the process that will
maximize the return of investment value on a property. It is also searching a highest and most
reliable sources of revenue, decreasing expenses.
The real estate management includes:
On behalf odf the property owner, it negotiates the property arrangements and leases.
Looking for the lenders
Evaluating the value of property and to find out the ways to increase its value.

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Reference
Haynes, B., Nunnington, N. and Eccles, T., 2017. Corporate real estate asset management:
strategy and implementation. Taylor & Francis.
Hiran, S., 2016. Financial Performance Analysis of Indian Companies Belongs to Automobile
Industry with Special Reference to Liquidity & Leverage. International Journal of
Multidisciplinary and Current Research, 4, pp.39-51.
Hu, Y., Yang, X., Wang, M., Li, G. and Lin, L., 2016. Optimum method of image acquisition
using sawtooth-shaped-function optical signal to improve grey-scale resolution. Journal of
Modern Optics, 63(16), pp.1539-1543.
Mohagheghi, V., Mousavi, S.M. and Vahdani, B., 2017. Analyzing project cash flow by a new
interval type-2 fuzzy model with an application to construction industry. Neural Computing and
Applications, 28(11), pp.3393-3411.
Srinivas, Y. and Khan, M.A.A., 2017. A Conceptual Analysis of Accounting for Depreciation
using Component Wise Approach-Indian Perspective. Sumedha Journal of Management, 6(1),
pp.78-102.
Yahaya, O.A., Kutigi, U.M., Solanke, A.A., Onyabe, J.M. and Usman, S.O., 2015. Current assets
management and financial performance: Evidence from listed deposit money banks in
Nigeria. International Journal of African and Asian Studies, 13, pp.45-56.

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