Cash Budget Forecast of cash inflows and outflows over the next short-term planning period
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Cash Budget Forecast of cash inflows and outflows over the next short-term planning period

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Cash Budget Forecast of cash inflows and outflows over the next short-term planning period




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Presentation on theme: "Cash Budget Forecast of cash inflows and outflows over the next short-term planning period"— Presentation transcript:

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Cash Budget

Forecast of cash inflows and outflows over the next short-term planning periodPrimary tool in short-term financial planningHelps determine when the firm should experience cash surpluses and when it will need to borrow to cover working-capital costsAllows a company to plan ahead and begin the search for financing before the money is actually needed

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Example: Cash Budget Information

Pet Treats Inc. specializes in gourmet pet treats and receives all income from salesSales estimates (in millions)Q1 = 500; Q2 = 600; Q3 = 650; Q4 = 800; Q1 next year = 550Accounts receivable

Beginning receivables = $250

Average collection period = 30 days

Accounts payablePurchases = 50% of next quarter’s salesBeginning payables = 125Accounts payable period is 45 daysOther expensesWages, taxes, and other expense are 30% of salesInterest and dividend payments are $50A major capital expenditure of $200 is expected in the second quarterThe initial cash balance is $80 and the company maintains a minimum balance of $50

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Example: Cash Budget – Cash Collections

ACP = 30 days, this implies that 2/3 of sales are collected in the quarter made and the remaining 1/3 are collected the following quarterBeginning receivables of $250 will be collected in the first quarter

Q1

Q2

Q3

Q4

Beginning Receivables

250

167200217Sales500600650800Cash Collections583567633750Ending Receivables167200217267

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Example: Cash Budget – Cash Disbursements

Payables period is 45 days, so half of the purchases will be paid for each quarter and the remaining will be paid the following quarterBeginning payables = $125

Payment of

accounts

(rounded to nearest dollar throughout):Q1: 125 + .5(600)/2 = 275Q2: 150 + .5(650)/2 = 313 Q3: 162 + .5(800)/2 = 362Q4: 200 + .5(550)/2 = 338

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Q1

Q2

Q3

Q4

Payment of accounts

275

313

362

338Wages, taxes and other expenses150180195240Capital expenditures200Interest and dividend payments50505050Total cash disbursements

475

743

607

628

Example: Cash Budget – Cash Disbursements

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Example: Cash Budget – Net Cash Flow and Cash Balance

Q1

Q2

Q3

Q4

Total cash collections

583

567

633750Total cash disbursements475743607628 Net cash inflow108-17626122

Beginning Cash Balance

80

188

12

38

Net cash inflow

108

-176

26122Ending cash balance1881238160Minimum cash balance-50-50-50-50Cumulative surplus (deficit)138-38-12110

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Short-Term Borrowing

Unsecured LoansLine of creditCommitted vs. noncommitted

Revolving credit arrangement

Letter of credit

Secured LoansAccounts receivable financingAssigningFactoringInventory loansBlanket inventory lienTrust receiptField warehouse financingCommercial PaperTrade Credit

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Short-Term Financial Plan

Short-term funds are borrowed at 12% and interest is compounded quarterly.Short-term

surpluses (beginning cash balance – minimum cash balance)

are invested at 2% and interest is compounded quarterly

.

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Q1

Q2

Q3

Q4

Beginning cash balance

80

188

50

50Net cash inflow108(176)26122Interest on short-term investment 0.150.69Interest on short-term loan(1.11)(0.36)Short-term borrowing repaid

25

13

Ending cash balance

188

50

50

159

Minimum cash balance

(50)(50)(50)(50)Cumulative surplus (deficit)13800109Beginning short-term debt

0

0

38

13

Change in short-term debt

0

38

(25)(13)Ending short-term debt038130

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