The selected company for discussion on capital budgeting techniques is Apple Inc. Apple Inc. is a Californian based American public company that deals in consumer electronics; it is the designer, manufacturer as well as the marketer of portable communication gadgets and media devices. The company also manufactures personal computers apart from software, networking solutions, and other related services. Apple Inc. came into being in January 1977.
Long-term goal of the company
As encoded in its vision and mission, a major long-term goal for Apple Inc. is to be a leader and an ultimate provider of solutions in the communication industry and technological innovations. This objective is achievable by adherence to the combination of a set of operating standards. Product excellence and continuous innovation bring out unmatched performance and unparalleled product quality. Collaboration among all parties both internal and external is a key driver to Apple’s destination as a global star in the ICT sector.
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Capital expenditure
Capital expenditure is any financial allocation by an organization for the acquisition of long-term assets and properties which are projected to serve in the production of the organization’s operation for a period longer than a year (Morse, 2016).
In the year 2012, Apple Inc. acquired production equipment formally belonging to Sharp. This cost the organization a total of $2 billion. The corporation went ahead shortly after and initiated a sapphire display plant deal in Arizona. These investments had a noticeable impact on the company’s financial position. The production equipment, an asset investment, was meant to increase the company’s product output to meet the ever increasing market demand for Apple’s product. Being capital investments, the two projects are expected to be in use for a long period.
Capital expenditure and long-term goals
Capital expenditure involves the acquisition of new machines, equipment or upgrading the existing ones. This ensures continuity of production hence stay in business. When financial resources are allocated to the purchase of additional equipment, the resultant effect is an increased output which points to an extended market capture (Henry, 2003). Quality of products is enhanced when a company invests in dynamic tools. Customer satisfaction follows this gesture, and as a result, a long-term relationship will be maintained with happy clients. Capital investment is carried out when there is a positive future strategy which builds up organization’s success.
Challenges for budget managers
Uncertainty is one of the major challenges faced by capital expenditure budget managers in Apple Corporation. The acquisition of production equipment from Sharp was a decision pegged on costs and benefits veiled in the future. The success of such investments lies so much in the uncertain nature of a future market trend (Boyabatlı, Leng, & Toktay, 2015).
World over, budgets are not formulated on precision; they are a traditional aspect of assumption. Too many errors usually accompany a budget-writing and funds allocation exercise. A lot of time is employed in the budgeting process whose outcome may not match the resources allocated.
Market volatility is yet another factor which ponders the minds of budget managers in capital expenditure. Drastic changes in the factors of production and resource levels cause enormous constraints on budgeting. Any unfavorable change has a devastating effect on a rigid budget.
It becomes more difficult for a budget manager to come up a standard measure on the impact of allocation on capital expenditure. Other factors to capital financing may not figuratively respond to the outcome of capital finance in a manner that suggests equitable distribution of consequence.
Potential solution for budget managers
It is apparent that capital expenditure is an investment on factors whose production depends on variable factors being held constant. It therefore simply means that managers should exercise flexibility and create room for adjustments should the business opt for a fallback. Before any allocation to capital expenditure, all facts pertaining to market volatility, product performance and budget prioritization must be considered.
References
Boyabatlı, O., Leng, T., & Toktay, L. B. (2015). The impact of budget constraints on flexible vs. dedicated technology choice. Management Science , 62 (1), 225-244.
Henry, P. B. (2003). Capital account liberalization, the cost of capital, and economic growth (No. w9488). National Bureau of Economic Research .
Morse, A. (2016). Financial sustainability of local authorities: capital expenditure and resourcing: report by the Comptroller and Auditor General: 15 June 2016. National Audit Office.
