Question

In: Finance

Why do we refine the forecasted cash balance? How might we deal with a cash balance...

Why do we refine the forecasted cash balance? How might we deal with a cash balance that is much too low compared with the company’s normal cash level?

Solutions

Expert Solution

We will be forecasting the cash balance so that we do not forecast an amount that deviates from normal level so if the cash flows is significantly low, we will assume that the company will be needing additional cash by borrowing money and selling stocks or selling the marketable securities so we will be adjusting our forecasted amount accordingly with normal levels in order to avoid any kind of deviation.

if we have a cash balance that is too low in comparison with the company's normal cash flow then we will try to adjust it upward byborrowing money and selling stocks and selling the marketable securities or doing any hybrid mixture of these securities in order to Inflate those cash flows in order to realign with the normal level of cash flow so that other estimates can be made reliably and deviations can be reported in lesser amount which will be helpful in order to establish better control mechanism.


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