CHAPTER 6

Operating Budgets

Chapter 5 illustrated long-term financial forecasts covering multiple years. Both internal and external decision-makers engage in long-term forecasting. This chapter illustrates the process of short-term financial forecasting—an activity engaged in exclusively by internal decision-makers to prepare operating budgets. Unlike long-term forecasts, operating budgets generally cover time horizons of less than one year—usually months or quarters.

Operating budgets are valuable planning tools that help managers avoid cash flow problems, anticipate financing needs, manage working capital, adjust staffing levels, develop tax strategies, and more effectively perform a variety of other important functions. They are referred to ...

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