Cash Budget for Masson Corporation (In millions)
Q1\sQ2\sQ3\sQ4
Initial receivables
$120\s$60\s$80\s$100
Sales
$90\s$120\s$150\s$120
Cash receipts ($150) ($100) ($130) ($140)
Receivables coming to an end
$60\s$80\s$100\s80
Total cash receipts
$150\s$100
$130
$140
Total cash outlays ($80) ($160) ($180) ($160)
Net cash inflows of $70 ($60) ($50) ($20).
Starting cash balance
$5\s$75\s$15\s($35)
$70 in net cash inflow ($60) ($50) ($20)
Cash balance at the end
$75\s$15\s($35)\s($55)
Minimum cash balance ($5) ($5) ($5) ($5) ($5) ($5)
The total surplus (Deficit)
$70\s$10\s($40)\s($60)
A cash budget is a plan for cash disbursement and reception in an organization. Primarily, the cash outflows and inflows in the capital budget include revenue, expense, loan payment, and credit receipts. Masson Corporation Company has been negative from Q2 to Q3 indicating that there are negative factors that are draining its cash flow. Primarily in from quarter 1 to quarter four there are more cash outflows that inflow in the company indicating that the firm ca not meet its short term obligations in cash.
Masson Company has about 60 day collects in every quarter, this means that only sales that are made within the first 30 days of a quarter can only be received within that quarter. For the first quarter, the cash collection will be 30/90= 1/3 of the sales. So the total collections will be 120+ (1/3*90)= 150. Consequently, this means that the ending receivables for Q1 will be 2/3*90= 60. The conclusion from the study is that starting Q3 the firm’s cash surplus will be a deficit. Importantly, the company by the end of Q4 in will be in need of $60 million in cash which will be unavailable.
Options
The options available for the organization are to improve on receivables, accelerating cash inflows, reduce on the cash outflows, and manage the payables. All these factors in the body increase cash. Moreover, the quicker that the company call collects its receivables that better as it can use the same cash in making more money translating to more income for the enterprise. Moreover, accelerating the companies cash inflows includes streamlining the elements of cash conversion that include the ordering process, invoicing the customer, collection period, credit decision, fulfillment, and deposits of funds. Additionally, other options for the company involve increasing equity through the sale of stock, decreasing fixed assets, and decreasing current assets other than cash.
Recommendations
The recommendations for the organization include increasing the firm’s equity or liabilities through decreasing the asset account. The strategy will result in more cash inflow into the company. Moreover, the enterprise should reduce the collection period. This makes sure the company has ready cash to undertake any productive activities leading to the generation of income. Consequently, the firm defers payment to creditors by paying have the money in one-quarter and the other balance in the next quarter. Primarily, this improves the cash outflow by making sure the cash inflows are more.
Masson Corporation
Cash budget
(in millions)
Q1
Q2
Q3
Q4
Beginning Receivables
$120
$45
$60
$75
Sales
$90
$120
($150)
$120
Cash collections
$165
$105
($135)
$135
Ending Receivables
$45
$ 60
$75
$60
Total cash collections
$165
$105
$135
$135
Total cash disbursements
$40
$120
($170)
$170
Net cash inflow
$125
$(15)
$(35)
$(35)
Beginning cash balance
$5
$130
$115
$80
Net cash Inflow
$125
($15)
($35)
($35)
Ending cash balance
$130
$115
$80
$45
Minimum cash balance
$5
$5
$5
$5
Cumulative Surplus (deficit)
$125
$110
$75
$40
