5 Short Term Financial Mgmt

B. Based on your findings in part b, will the company need any outside financing?

Based on our findings in Part A, the company will definitely need outside financing. There is a cash deficit in three months out of the year that was examined. The months that are deficits are March, April, and June 2004. If there is no outside financing brought into the company, the cash that is needed in order to cover the expenses that are incurred the month following each deficit will not be available. Without the cash being fed into the company through financing, there would be no way for the company to pay the expenses such as administration, materials, lease or income taxes. A company cannot stay continue to operate if there are more expenses than there is revenue. By acquiring outside financing, the company “buys” itself time to better its financial standing and gives them the cash to pay the expenses that are needed to keep the business afloat.

C. What is the minimum line of credit that CBM will need?

Based on our findings, it appears that the company will need to borrow a total of $220,750 from outside sources. The amount of cash borrowed, will then be paid off with any surplus cash that is produced in the following months. Without the repayment within a short period, the cash deficit will most likely increase due to the amount borrowed plus the interest payments on the borrowed funds.

D. What do you think of CBM’s cash position during the budget period? Do you see any concerns for the company in this regard?

After reviewing the past nine months of Cyrus Brown Manufacturing’s (CBM) cash position, I am a little concerned with a couple months of the cash flow. Although the losses during the first and second quarters are not an ongoing issue it has me wondering about the cash management plan, and why appropriate measures were not taken to budget better for the acquisition of a new building.

The objective of cash management is to increase cash flow into a business, to decrease the flow of cash out of a business, to receive cash more quickly, and to pay cash out more slowly. Managing cash levels and financing working capital effectively is necessary to keep a business’s costs and risk under control while maintaining a business’s returns and cash flow over the long term. Having a minimum balance ensures that enough money is maintained in the cash account to make payments when needed. Having a maximum balance ensures that the business limits the cash balance so that it can invest and earn a return on as much as possible.

A cash budget is used to estimate detailed cash needs for future periods. This shows cash flow from month to month through