Building Financial Models with Microsoft® Excel®: A Guide for Business Professionals, Second Edition

Chapter 6. Financial Budget—Capital Budget and Cash Budget

The Financial Budget represents the second of the two components of the Master Budget (the Operating Budget represents the first component) and includes the following components: the Capital Budget, the Cash Budget, and the budgeted Balance Sheet. In conjunction with the steps outlined in Chapters 2 through 5, this chapter represents the final step in building the Master Budget. Subsequent chapters in this book will cover topics such as the consolidated financial statements, free cash flows, and a variety of financial modeling tools and techniques. Figure 6.1 highlights the componentsof the Financial Budget and their relative position in the Master Budget hierarchy.

STEP 7A: CAPITAL EXPENDITURES BUDGET

The Capital Expenditures Budget (also know as the "CAPEX" budget) covers Napavale's projected purchases of large items such as equipment and furniture. When a business purchases something such as a computer or a desk for its own use, it must decide if it will expense or capitalize such an item. While many accounting regulations and pronouncements surround this issue of expensing versus capitalizing purchased goods, I will cover this topic in a very general fashion. In basic terms, Napavale's financial model assumes that large-value purchases, such as for furniture, are capitalized. When and if you build your own financial model, the issue of capitalization versus expensing is something you must address in a manner consistent ...