CASH BUDGET (Jan-June)

1. Cash budget is a primary tool in short-run financing planning.

2. An important function of the cash budget is to help the manager explore the need for short-term borrowings (firm's liquidity p
3. Cash budget records estimates of cash receipts (cash in) and disbursement (cash out).
4. The result is an estimate of the cash surplus or deficit.

Worksheet Oct. Nov. Dec. Jan Feb

Sales 135,000 141,750 100,000 80,000 145,000
Collection
During sales' month (50%) 40,000 72,500
Prior month's sales (30%) 30,000 24,000
Sales 2 months ago (20%) 28,350 20,000
Total collections 98,350 116,500

Purchases Cogs (65% of next 2 month's sales) 94,250 81,250 94,250

Payments (I month lag) 94,250 81,250
Cash budget
Cash receipt
Total collections 98,350 116,500

Cash disbursement
Purchases (COGS) 94,250 81,250
Wages and salaries (5% of sales) 4,000 7,250
Rent 15,000 15,000
Other expenses (0.75% of sales) 600 1,088

Interest expense on short-term debt (6% p.a.) 229 170

Taxes 35%
Purchases of equipment
Loan Repayment

total disbursement 114,079 104,757

Net Monthly change (15,729) 11,743

+beginning cash balance 20,000 50,000

=ending cash balance before short-term

borrowing 4,271 61,743
Financing needed (Loan repayment) 45,729 (11,743)
Ending cash balance 20,000 50,000 50,000
Cumulative borrowing 0 45,729 33,986
45,729 (11,743)

Minimum cash balance $50,000

If current ending balance before short term borrowi
cash balance, then (-ve) current ending balance befo
minimum cash balance, else MAX (minimum cash ba
balance before short term borrowing, (-ve) previous

=IF(E45<$B$51,$B$51-E45) This conditional function implies that firm will borrow (a

If firm's ending balance is more than the minimum cash
=-MIN(E45-$B$51,-D48) (a) The excess cash flows (E45-B51)
(b) last period cumulative borrowings.
GET (Jan-June)
erm borrowings (firm's liquidity position)

Mar Apr May Jun

125,000 145,000 185,000 100,000 100,000 105,000
Assumptions/notes
62,500 72,500 92,500 50,000 50% of the cash receipts are from the sales during the sales' m
43,500 37,500 43,500 55,500 30% of the cash receipts are from sales during the 2nd month.
16,000 29,000 25,000 29,000
122,000 139,000 161,000 134,500

120,250 65,000 65,000 68,250 Purchases from suppliers in a month are equal to 65% of the n
94,250 120,250 65,000 65,000 Cash payment to suppliers are equal to the previous month's p

122,000 139,000 161,000 134,500

94,250 120,250 65,000 65,000

6,250 7,250 9,250 5,000
15,000 15,000 15,000 15,000
938 1,088 1,388 750

143 167 0 0

10,000
5000
10,000

116,580 143,754 90,638 110,750

5,420 (4,754) 70,363 23,750

50,000 50,000 50,000 87,042 The company starts the year (Jan) with a $20,000 cash balanc
The company maintains a $50,000 minimum cash balances to

55,420 45,246 120,363 110,792 Any shortfall in cash will be supported by borrowings.
(5,420) 4,754 (33,321) 0
50,000 50,000 87,042 110,792
 28,566 33,321 0 0
(5,420) 4,754 (70,363) (60,792)

Reasons for holding cash

ance before short term borrowing is less then(<) minimum
-ve) current ending balance before short term borrowing plus(+)
nce, else MAX (minimum cash balance minus(-) current ending
t term borrowing, (-ve) previous cumulative borrowing)
1. Transactions, both routine & precautionary
2, Compensation to banks for providing loans and services.
Questions.
1. If you are the CFO, how much of borrowing will you request

n implies that firm will borrow (at the difference between E45 & B51) when the ending cash flow (E45) is less than their minimum cash bala
is more than the minimum cash balance, to select the minimum of (a) and (b).
ws (E45-B51)
ve borrowings.
m the sales during the sales' month.
m sales during the 2nd month.

onth are equal to 65% of the next two months' predicted sales.
qual to the previous month's purchases. Therefore, account payable period is 30 days.

n) with a $20,000 cash balance.

00 minimum cash balances to guard against unforeseen contingencis & forecasting errors.

orted by borrowings.
precautionary
oviding loans and services.

h of borrowing will you request from the bank?

than their minimum cash balance (B51).

 CASH BUDGET (class exerci
Assumptions
1. 30%, 40% and 30% of the cash receipts are from sales in the current, previous and previous 2 months respectively.
2. Purchases from suppliers in a month are equal to 70% of the next two months' predicted sales.
3. Cash payment to suppliers are equal to the previous month's purchases.
4. Salaries are 10% of sales.
5. Rent is 20,000 per month
6. Taxes and other expenses are 10% of sales.
7. Interest on short term debt is at 7% p.a.
7. The company plans a major expansion costing 15,000 in Apr.
8. Dividends are currently 200 per quarter to be paid in June.
9, The company starts the year (Jan) with a 15,000 cash balance.
10. The companys a $25,000 cash balance.

Worksheet Oct. Nov. Dec. Jan Feb

Sales 135,000 141,750 100,000 80,000 84,000
Collection
Current month (30%) 24,000 25,200
Prior month sales (40%) 40,000 32,000
Sales 2 months ago (30%) 42,525 30,000
Total collections 106,525 87,200

Purchases Cogs (70% of next 2 month's sales) 58,800 61,740 64,827

Payments (I month lag) 58,800 61,740
Cash budget
Cash receipt
Total collections 106,525 87,200

Cash disbursement
Purchases (COGS) 58,800 61,740
Salaries (10% of sales) 8,000 8,400
Rent 20,000 20,000
Taxes and other expenses (10% of sales) 8,000 8,400

Interest expense on short-term debt (7%) 0 56

Purchases of equipment
Dividend payment 0 0

total disbursement 94,800 98,596

Net Monthly change 11,725 (11,396)

+beginning cash balance 15,000 26,725

=ending cash balance before short-term
borrowing 26,725 15,329
Financing needed (Loan repayment) 0 9,671
Ending cash balance 15,000 26,725 25,000
Cumulative borrowing 0 0 9,671

Minimum cash balance $25,000

GET (class exercise)
2 months respectively.

Mar Apr May Jun

88,200 92,610 97,241 102,103 107,208 112,568

26,460 27,783 29,172 30,631

33,600 35,280 37,044 38,896
24,000 25,200 26,460 27,783
84,060 88,263 92,676 97,310

68,068 71,472 75,045 78,798

64,827 68,068 71,472 75,045

84,060 88,263 92,676 97,310

64,827 68,068 71,472 75,045

8,820 9,261 9,724 10,210
20,000 20,000 20,000 20,000
8,820 9,261 9,724 10,210

165 361 470 581

15,000
0 0 0 200

102,632 121,952 111,390 116,247

(18,572) (33,689) (18,714) (18,937)

25,000 25,000 25,000 25,000

 6,428 (8,689) 6,286 6,063
18,572 33,689 18,714 18,937
25,000 25,000 25,000 25,000
28,243 61,932 80,646 99,583