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We will focus on developing the pro formas and the cash budget
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340.80
1752.20 189.05 225.00 163.38 577.43 424.61 1002.04 460.00 300.04 760.04 1762.08 -9.88 Forecast 4300.00 22.00
360.80
1650.80 175.20 225.00 140.00 540.20 424.61 964.81 460.00 225.99 685.99 1650.80
344.80
1468.80 145.60 200.00 136.00 481.60 323.43 805.03 460.00 203.77 663.77 1468.80
Ordinarily, the pro-forma balance sheet will not balance! This is intentional, and the amount needed to make it balance is referred to as the Discretionary Financing Needed, DFN (or External Financing Needed, EFN) This is a plug figure that represents the amount of discretionary financing that the firm will need to obtain in order to support its forecasted level of sales
It provides an estimate of the ending cash balance in each month It provides estimates and sources of the cash inflows and outflows It provides a basis of comparison against which managers can be evaluated
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Essentially, a cash budget starts with the beginning cash balance, adds expected cash inflows, and subtracts any expected cash outflows. The result is the expected ending cash balance.
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Here is the information required to assemble the cash budget for Bithlo Barbecues:
Expected sales are on the next slide 40% of sales are for cash. Of the remainder, 75% is collected the following month, and 25% is collected two months after the sale. Inventory purchases are equal to 50%of the next months sales. 60% of purchases are paid for the following month, and the remainder one month later. Wages are 20% of sales. Leasing expenses is $10,000 per month. Interest payments of $30,000 are due in June and September. A $50,000 dividend payment will be made in June. Taxes of $25,000 are due in June and September. A $200,000 capital improvement will be paid for in July. The company must keep a minimum cash balance of $15,000.
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The worksheet area is where we gather certain key numbers which will be used in the rest of the cash budget.
Bithlo Barbeques Cash Budget For the Period June to September 1998 April May June July August September October 291,000 365,000 387,000 329,000 238,000 145,000 92,000 40% 45% 15% 154,800 131,600 95,200 164,250 174,150 148,050 43,650 54,750 58,050 362,700 360,500 301,300 50% 182,500 193,500 164,500 119,000 72,500 60% 40% 116,100 98,700 71,400 73,000 77,400 65,800 189,100 176,100 137,200 58,000 107,100 49,350 214,450 46,000 43,500 47,600 91,100
Sales Collections: Cash First Month Second Month Total Collections Purchases Payments: First Month Second Month Total Payments
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This section shows all of the cash collections and disbursements. Note that these are only cash inflows and outflows. The cash budget is not the same as the income statement.
Collections Less Disbursements: Inventory Payments Wages Lease Payment Interest Dividend (Common) Taxes Capital Outlays Total Disbursement 362,700 360,500 301,300 214,450 91,100 29,000 10,000 30,000 0 25,000 0 185,100 20% 189,100 176,100 137,200 77,400 65,800 47,600 10,000 10,000 10,000 30,000 0 0 50,000 0 0 25,000 0 0 0 200,000 0 381,500 451,900 194,800
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This section is where we calculate the ending cash balance and determine if we will need to borrow for each month.
Beginning Cash Balance Collections - Disbursement Unadjusted Cash Balance Current Borrowing Needed Ending Cash Balance Notes: Minimum Acceptable Cash 15,000 20,000 0 20,000 20,000 (18,800) 1,200 13,800 15,000 15,000 15,000 (91,400) 106,500 (76,400) 121,500 91,400 0 15,000 121,500 121,500 29,350 150,850 0 150,850
Note that Bithlo Barbecues will need to borrow in June and July, and will have excess cash in August and September.
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