What Is an Appropriation?

Appropriation is when money is set aside for a specific purpose. A company or a government appropriates funds in order to delegate cash for the necessities of its operationܫs. Appropriations for the U.S. federal government are decided by Congress through various committees. A company mightꦏ appropriate money for short-term or long-term needs that include employee salaries, research and development, and dividends.

What Does an Appropriation Tell You?

Appropriations tell us how money or capital is being allocated whether it's through the federal government's budget or a company's use of cash and capital. Appropriations by governments are made for federal funds each year for various programs. Appropriations for companies may also be known as capital allocation.

Appropriation could also refer to setting apart land or buildings🔯 for public use, such as public buildings or parks. Appropr♚iation can also refer to when the government claims private property through eminent domain.

Federal Appropriations

In the United States, appropriations bills for the federal government's spending are passed by Congress. The government's fiscal year runs from October 1 through September 30 of each calendar year.

Each fiscal year, the U.S. President submits a budget proposal to Congress. Budget committees in the U.S. House and Senate then determine how the discretionary portion of the budget will be spent through a budget resolution process. The process yields an allocation of𓄧 an amount of money that is assigned to the various appropriations committees.

The House and Senate appropriations committees divide the money up between the various subcommittees that represent the departments that'll receive the money. Some of the departments include the following:

• Department of Agriculture
• Department of Defense
• Department of Energy
• Department of Commerce
• Department of Labor
• Department of Transportation

Congress also passes supplemental appropriations bills for instances when special funding is needed for natural disasters and other emergencies. For example, in December 2014, Congress approved the Consolidated and Further Continuing Appropriations Act, 2015. The act approved $5.5 billion to fight the Ebola virus in West Africa and for domestic emergency responses to the disease. The Act also allocated funding for controlling the v🐬irus and developing treatments for the disease.

Appropriations in Business

Corporate appropriations are how a company allocates its funds and can include share buybacks, dividends, paying down debt, and fixed asset purchases. Fixed assets are items such as property, plants, and equipment. In short, how a company allocates capital sp♏ending is important t💫o investors and the long-term growth prospects of the company.

Market participants m☂onitor closely how a company appropriates money or invests its cash. Investors watch to determine whether a company is using its cash effectively to build shareholder value or whether it is engaging in frivolous cash use, which can destroy shareholder value.

Monitoring Corporate Appropriations

Investors monitor corporate appropriations of cash by analyzing a company's cash flow statement. The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations and fund its operati🔜ng expenses. The cash flow of a company is divided into three activities or behaviors:

• Operating activities: Include any sources and uses of cash from business activities such as cash generated from a company's products or services
• Investing activities: Include any sources and uses of cash from a company's investments such as a purchase or sale of an asset
• Cash from financing activities: This activity includes the sources of cash from investors or banks, as well as the uses of cash paid to shareholders. Dividend payments, stock repurchases, and the repayment of debt principal (loans) are included in this category.

Example of Company Appropriations

Below is the cash flow statement for Exxon Mobil Corporation (XOM) for the three-month period ending Sept. 30, 2018, as reported in its 10Q filing. The cash flow statement shows how the executive management of Exxon appropriated the company's cash and profits:ไ

• Under the investing activities section (highlighted in red), $13.48 billion was allocated to purchase fixed assets or property, plant, and equipment.
• Under the financing activities section (highlighted in green), cash was allocated to pay down short-term debt in the amount of $4.279 billion.
• Also under financing activities, dividends were paid to shareholders (highlighted in blue), which totaled $10.296 billion.

Whether Exxon's use of cash is effective or not is up to investors and analysts to debate since evaluating the process of appropriating cash is highly subjective. Some investors might want more money allocated to dividends, while other investors might want Exxon to allocate money towards investing in its future by purchasing and upgrading equipment.

♔ Appropriations v🌜s. Appropriated Retained Earnings

澳洲幸运5开奖号码历史查询:Appropriated retained earnings are retained earnings (RE) that are specified by the board of directors for a particular use. Retained earnings are the amount of profit left over after a company has paid out dividends. Retained earꦿnings accumulate over time and can be used at a later date.

Appropriated retained earnings can be used for many purposes, including 澳洲幸运5开奖号码历史查询:acquisitions, debt reduction, stock buybacks, and R&D. There may b🍸e more than one appropriated retained earnings account at any time. Typically, appropriated retained earnings are used only to indicate toꦇ outsiders the intention of management to use the funds for some purpose.

Limitations of an Appropriation

For investors, the cash flow statement reflects a company's 澳洲幸运5开奖号码历史查询:financial health&nbs🐼p;since typically the more cash that's available for business operations, the better. However, there are limitations to analyzing how money is spent. An investor won't☂ know if the purchase of a fixed asset generates revenue or creates a loss unless the purchase was highly publicized.

As a result, the investor can only infer whether management is effectively deploying or appropriating its funds properly. Sometimes a negative cash flow results from a company's growth strategy in the form of expanding its operations.

The Bottom Line

Appropriation is the government oꦐr business act of setting aside capital for specific purchases. By studying how a company allocates its spending and uses its cash, an investor can get a clear picture of how uses its cash and gain a solid understanding of the financial well-being of a company.