Financial Management: Core Concepts, Third Edition

12.4 The Cash Forecast: Short-Term Deficits and Short-Term Surpluses

Having examined some of the cash inflow and cash outflow issues, we can now turn to the daily planning for cash, or the cash budget. We want to home in on the management of cash as it applies to a company’s short-term borrowing or investing. The goal, of course, is to have sufficient cash on hand to pay bills without carrying excess cash. Excess cash is an asset that has an opportunity cost: lost earning power for the company.

We can condense the items that require cash outflow from Figure 12.1 into four categories:

1. Accounts payable for materials and supplies

2. Salaries, labor wages, taxes, and other operating expenses of the business

3. Capital expenditures

4. Long-term financing ...