Question

The treasurer of Pablitos wants to estimate the operating cash flow of company for the next six months.
Using the following information, build a monthly cash flow budget for pablitos from october to March 2018.

Do you think that the treasurer should be concerned about inversting the excess of cash for a bank loan ?

Sales (40% in cash, the rest on credit at 30 days)

2017 projected

October 550 000

November 670 000

December 280 000

2018 projected

January 340 000

February 450 000

March 470 000

Purchases (60% in cash, the rest to 60 days)

2017 projected

October 380 000

November 500 000

December 440 000

2018 projected

January 300 000

February 220 000

March 470 000

Collected interests in March 160 000

Payment of debt i January 90 000

Dividends to be paid in February 80 000

Taxes to be paid in March 100 000

Salaries are monthly paid 140 000

Cash balance as of October 1, 2017 480 000

Answer 1

Cash flow budget:-

Month	October	November	December	January	February	March
Sales	550,000	670,000	280,000	340,000	450,000	470,000
Cash sales (40%)	220,000	268,000	112,000	136,000	180,000	188,000
Credit Sales (60%, 30 days)		330,000	402,000	168,000	204,000	270,000
Cash Receipts	220,000	598,000	514,000	304,000	384,000	458,000
Purchases	380,000	500,000	440,000	300,000	220,000	470,000
Cash Purchases (60%)	(228,000)	(300,000)	(264,000)	(180,000)	(132,000)	(282,000)
Credit Purchases (40%, 60 days)			(152,000)	(200,000)	(176,000)	(120,000)
Interest						160,000
Debt Payments				(90,000)
Dividends					(80,000)
Taxes						(100,000)
Salaries	(140,000)	(140,000)	(140,000)	(140,000)	(140,000)	(140,000)
Opening Balance	480,000	332,000	490,000	448,000	142,000	(2000)
Closing Balance	332,000	490,000	448,000	142,000	(2000)	(26,000)

The treasurer should invest the excess balance at the end of each month. This is because as per the above table, the company will be in a liquidity crisis in the month of February and March. So, they should invest the excess amount each month which will be useful to them in case of liquidity crisis.