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FINA425- Unit 3 - Individual Project Cash Budget Analysis

Good cash management is impossible without an analysis of the cash collections and cash disbursements of a company. Cash budgets provide a gauge for determining credit, disbursement, and discount policies. Cash budgets are effective control devices for monitoring cash and determining financing requirements.

Cash budgets are essential to all small businesses. In this assignment, you are required to do the following:

  • Develop a spreadsheet with a cash budget with lagging collections

  • Determine the net cash flows for the year

  • Forecast the cumulative dollar amount of the external financing required for the year

Middletown Construction Company Cash Budget Analysis


Middletown Construction Company has a great cash flow for the months starting April and it increases through November before reducing in December. However, January and February are a period the company faces cash flow challenges. The company has a cash deficit in January, February, April, June, July, and December with December recording the highest credit line. However, from August to November, the company has a cash surplus. The challenge witnessed by the company is its cash management which pushes them to seek external financing for six months of the year when they face a deficit. However, Cash flow makes a bank manager confident to take it as a client as it shows a positive ability to repay the loan borrowed.

Middletown Construction Company Cash Budget Analysis

Cash budgets are the most important tool for monitoring and controlling corporate cash. Without them, good cash management is simply impossible for the business. Cash budgets are necessary for controlling cash in any organization. Management can easily understand and make decisions regarding their financial reserve using cash budgets. It gives a clear picture at the end of the financial year of how much cash came into the business and how it was used; a clear indication of the cash cycle. It eases the evaluation and planning of the capital needs of the business. through such an analysis, management can easily tell when they can make long-term or short-term debt decisions and when they are needed (Bond, 2022).

Cash is a valuable asset for the business in meeting its daily expenses. Through the cash, the business can pay their bills and meet their short-term utilities. This shows the importance of having cash as a business. it is the money a business will have physically in coins, notes, or in the bank that helps meet their daily operations swiftly. It was thus important for Middletown Construction Company to prepare their cash budget to control their cash. Through this, the fluctuations of the cash reserve of the company can be easily seen. This gives a proper opportunity for the managers to plan for their cash to avoid running into unnecessary deficits (Bond, 2022).

From the cash budget prepared, Middletown Construction company has faced some challenges with the cash. With the many instances of cash deficits that have been witnessed especially during the first and last months of the business. there are times when the business has run out of cash. This made it hard for the company to operate efficiently without seeking external financing. The external financing was sought in January, February, April, May, June, and December. This is half the year.

When a business runs short of cash from the cash flows and cash conversion cycle, it will be unable to fully support its operations. This is because cash helps meet the operating expenses. As such, the company has to seek external sources to finance its deficit. From the cash budget, one can easily tell the company is facing poor working capital management as they run into a cash deficit for half of the year. This pushes them to seek external financing for a half year while operating. More and proper working capital and cash conversion cycle are required to help the company (Morshed, 2020).

Middletown Construction Inc. needs external financing for six months for them to fully operate in a year. This pushes their credit and debt status throughout the year forcing them to pay off their debts before moving on. The highest month when the company gets the highest external financing is in December. During this month, the company faces a cash deficit of $97,000. This money is sourced from external financing sources before the company can settle its bills and utilities fully. This makes it have the highest credit line in December.

A bank manager helps businesses access external finances for the operation of their business. As a business manager, the credit score of the business helps determine a good client. This is due to the credit repayment history and the profit and the cash flow of the business. this will help determine the ability of the business to repay the loan in the future. Looking at the cash flow and the profit of Middletown Construction Company, it is evident that they can repay their loan. This is because, in some the months like July, August, September, October, and November, the company records a higher cash surplus which would give them a chance to repay the loan they have. During these months, one can tell, that the business enjoys great cash flow and profit which helps them settle their bills and have extra cash that would be necessary to repay their borrowed cash.

A bank manager also acts as a financial advisor to their client. This would be a great opportunity for the Middletown Construction company to learn more about the working capital and financial management as a whole. The company lacks proper knowledge in working capital management and hence will need a financial expert to help them. This will help them utilize the months when they have a surplus cash flow to save for the months when they lack. From July to November, the cash flow is great but the company still recorded a higher credit line in December. The company could manage the working capital from the previous months to cover the expenses for December thus reducing their deficit thus their debt at the end of the year (Morshed, 2020).

In conclusion, the financial status of the Middletown Construction company is varied. Sometimes of the year like from July to November the company does well and has adequate cash to support its operating expenses. However, in some months like January, February, April, May, June, and December, the company has a cash deficit which pushes them to seek external financing. However, with the cash flow witnessed, a bank manager can confidently accept the company as a client. This is because they can repay the debt borrowed.


Morshed, A. (2020), "Role of working capital management in profitability considering the connection between accounting and finance", Asian Journal of Accounting Research, Vol. 5 No. 2, pp. 257-267.

Bond E. (2022). How to Prepare a Cash Budget. Edward Lowe Foundation.

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