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Financial Management Essay

2015 words - 9 pages

Pursuant to the request of Mr. Cyrus Brown we have prepared a monthly cash budget for the nine month period, March through November. Illustrated below are our findings.

March

April

May

June

July

August

September

October

November

SALES

$250,000.00

$275,000.00

$320,000.00

$450,000.00

$575,000.00

$700,000.00

$825,000.00

$350,000.00

$285,000.00

COLLECTION OF A/R 10%

$25,000.00

$27,500.00

$32,000.00

$45,000.00

$57,500.00

$70,000.00

$82,500.00

$35,000.00

$28,500.00

MONTH FOLLOWING (65%)

$162,500.00

$178,750.00

$208,000.00

$292,500.00

$373,750.00

$455,000.00

$536,250.00

$227,500.00

SECOND MONTH FOLLOWING 25%

...view middle of the document...

00

ADD:BEGINNING CASH

$50,000.00

ENDING CASH

$15,000.00

-$57,500.00

$7,000.00

-$128,250.00

$32,500.00

$65,000.00

$41,250.00

$67,500.00

$139,750.00

LESS:MINIMUM CASH BALANCE

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

-$50,000.00

REQUIRED TOTAL FINANCING

$35,000.00

$107,500.00

$43,000.00

$178,250.00

$17,500.00

$0.00

$8,750.00

$0.00

$0.00

EXCESS CASH BALANCE

$15,000.00

$67,500.00

$139,750.00

To decide if the company will need outside financing you need to look closely at the cash budget. Potential creditors use this to ascertain viability. From the Cash Budget we can see that CBM will need financing for the first five months and then additional financing in September. The cash budget tells us if there is a cash shortage or a cash excess at the end of each month. This is based on the set minimum requirement of cash balance. From March to July then in September total financing required is $390,000.00. The following amounts represent the recognized cash shortage for these six months.March - $35,000.00April - $107,500.00May - $43,000.00June - $178,250.00July - $17,500.00September - $8,750.00Total amount of financing = $390,000.00These numbers are generated by subtracting the ending cash balance at the end of each month from the minimum cash balance. This tells us what the plug figure would be to have the specified amount of cash on hand. The figures for the months of March though July, and September are positive values which means that the firm will not be able to generate enough internal financing to support its needs and growth. CBM will need to raise funds externally though borrowing or equity. Since CBM is a new company and does not have equity yet, it will need to finance by borrowing.In August, CBM shows a negative value for external financing required and this shows that it will generate enough financing internally to support its growth forecast. The excess funds now are available for repaying the debt.August - $15,000.00October - $67,500.00November - $139,750.00Total =...

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