Financial Management: Core Concepts, Third Edition

12.1 Sources and Uses of Cash

The ultimate goal of cash management is to have sufficient cash—but not too much—on hand to meet business obligations in a timely and appropriate manner. This goal is similar to the personal finance goal that we face with our own daily inflow and outflow of cash. We do not want to be caught short when we need cash, nor do we want to carry too much cash, thereby losing earning power on our money.

The cash budget is the analytical tool that estimates the future timing of cash inflow and cash outflow and projects’ potential shortfalls and surpluses. Although the cash management process will usually start with sales forecasting, we will first look at the “final product” to get an idea of where we are ultimately heading ...