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Introduction

The following has been prepared with the objective to find out the different capital budgeting techniques, it had been observed with the past history of the company's book that preparing a capital budgeting is one of the foremost and important parts of any enterprise. Capital budgeting is the planning process and is termed as the investment appraisal process of a company as it helps to determine the investment pattern of the firm and answers to the question of the ratio between the long term and short-term investment of the firm. The assignment had highlighted the fact of the company's management system can able to follow while making the capital decision of the firm, OrotonGroup Plc.

Sensitivity analysis

 

As commented by Graham & Sathye (2017), the sensitivity analysis of a company is the process based on which the different values of independent values impact the specific value with respect to the provided assumptions. Regan et al. (2015) stated that, the specific boundaries are mentioned in the technique that depends on more than input values. This results in the change in the rates of the interest that have the bond price. The Ortodon group uses the sensitivity analysis process in the field of the case of the interest rate as well as the foreign exchange risk. Application of the process of the sensitivity analysis gives the advantage of the ortodon company to compel the decision maker and allow identifying the values that affect the forecasts of the cash flow.

As commented by Turner & Guilding (2013), the use of the sensitivity analysis helps in the expose of the inappropriate cashflow forecast that guides the person in making the proper decision. The technique also helps to consider the actions that help in strengthening the limitations in the project. In the Ortodon group the cash flow in the year 2015 was $ 141,038 whereas the cash flow increased in the year 2016 $151,873. The technique of the capital budgeting thus helps in the improvement of the cash flow with respect to the receipts from the customer(Orton group ,2016). The interest received from the customers in the ortodon also increased in the year 2016 $ 17,006. Cash equivalents of the company previously in 2015 were $ 2,181 which later increased in 2016 that is $ 2,816(Orton group, 2016). However, the use of the sensitivity analysis has some limitations it does not gives the exact cut results of the company. The technique lacks the interrelationship between the provided values in the company. As for example, the sales of the volume may be related to the cost and the price to analyze the values separately. Although the Ortodon company manages to avoid the limitations in the process and gain profit from the technique.

Scenario analysis

 

As commented by Walters & Ramiah (2017), the technique of the scenario analysis is applied to understand the possible events of the future with considering the alternative possible outcomes. This can be considered as one of the most important forms of the projections that do not show the actual picture of the future. This technique involves the various reinvestment rates for the expected returns in the future. This process is based on the principles of statistical and mathematical events. Adopting the method by the Ortodon group can calculate the estimated shifts in the values of the portfolio. This identifies the potential risks in a given investment as to relate the variety of the given events. As commented by Smark & Mir (2017), with respect to the consumer side, a person utilizes the scenario analysis in the examination of the various financial outcomes of the purchase of an item in the basis of credit. Moreover, it also helps the person to see the different financial alterations that occur in deciding the offer for a new job post. The ortodon group while using the scenario analysis can able to analyse the financial results of the decisions as for example selecting either one or two facilities of the storefronts for the operation of the business. It contains the decisions such as the difference in rent the utility insurance and the charges. The strategy of the scenario analysis used by the ortodon company is the risk management strategy.

As commented by Walters & Ramiah (2017),  analyzing the problem in the case, then gather the data accordingly are first two important steps in the scenario analysis technique.this helps in the separation of the certainties and the uncertainties. According to after the observation of the case, the relevant scenarios are developed that are used in the planning of the better risk management process. The risk management strategy helps in building the better outcomes in the profit of the ortodon. The diversified effects of the risk in relation to the connection between the project returns and the firm's returns. It can be seen that the EBIT of  Ortodon in2015 was $5,625 which later increased in the year 2016 by $6,214. The EBITDA of Ortodon in the year 2-015 was 10,889 which changes to 12,917 in the year 2016(Orton group , 2016). The application of the scenario analysis helps to maintain the transparency between the company and the customers. As stated by Smark & Mir (2017), better the transparency between the company and the consumer, the better profit is to be expected. The own business risk can be managed by the company using the strategy of the risk management in the scenario analyzing the process. This requires the skilled and expert employees that can be a limitation using in the company.           

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