The Genesis operations management team is now preparing to implement the operating expansion plan. Previously the firm’s cash position did not pose a challenge. However, the planned foreign expansion requires Genesis to have a reliable source of funds for both short-term and long-term needs.
One of Genesis’s potential lenders tells the team that in order to be considered as a viable customer, Genesis must prepare and submit a monthly cash budget for the current year and a quarterly budget for the subsequent year. The lender will review the cash budget and determine whether or not Genesis can meet the loan repayment terms. Genesis’s ability to repay the loan depends not only on sales and expenses but also on how quickly the company can collect payment from customers and how well it manages its supplier terms and other operating expenses. The Genesis team members agreed that being fully prepared with factual data would allow them to maximize their position as well as negotiate favorable financing terms.
The Genesis management team held a brainstorming session to chart a plan of action, which is detailed here.
Since this expansion is critical to Genesis Corporation expanding into new overseas markets, the operations management team has been asked to prepare an executive summary with supporting details for Genesis’s senior executives.
Working over a weekend, the management team developed realistic assumptions to construct a working capital budget.
Based on this information, do the following:
NOTE: The Excel Spreadsheet Breakdown10% immediately (no delay); month 1 – 25% and that is within 30 days; month 2 – 35% and that is within 60 days and month 3 – 30% which is within the 90 day mark (barely but it works) which add up to 100% within 90 days. Does that make sense to all of you? Shane – I think you just got confused on your timing and percentages but in doing so, you helped your classmates by being brave enough to ask.
| Genesis Cash Budget ($000) | |||||||||||||||||
| Dec | Jan | Feb | March | April | May | June | July | Aug | Sept | Oct | Nov | ||||||
| Cash Inflow | |||||||||||||||||
| Sales (Reference only) | 300,000 | 200,000 | 350,000 | 400,000 | 500,000 | 550,000 | 700,000 | 650,000 | 900,000 | 850,000 | 750,000 | 150,000 | 190,000 | 3,000,000 | 2,400,000 | ||
| Cash Collections on Sales | |||||||||||||||||
| 20% in month of sale | |||||||||||||||||
| 30% in first month after sale | |||||||||||||||||
| 35% in second month after sale | |||||||||||||||||
| 40% in third month after sale | |||||||||||||||||
| Other Case Receipts | |||||||||||||||||
| Total Cash Inflow | |||||||||||||||||
| Cash Outflows | |||||||||||||||||
| Material Purchases (reference only) | |||||||||||||||||
| Payment for Material Purchase | |||||||||||||||||
| 100% in month after purchase | |||||||||||||||||
| Other Cash Payments | |||||||||||||||||
| Other production cost 30% | |||||||||||||||||
| of Material cost paid month | |||||||||||||||||
| after Purchase | |||||||||||||||||
| Selling and Marketing Expense | |||||||||||||||||
| General and Adminstrative expenses | |||||||||||||||||
| Interest Payment | |||||||||||||||||
| Tax Payment | |||||||||||||||||
| Dividend Payment | |||||||||||||||||
| Total Cash Outlfows | |||||||||||||||||
| Net Cash Gain/(Loss) | |||||||||||||||||
| Cash Flow Summary | |||||||||||||||||
| Cash Balance start of the month | |||||||||||||||||
| Net Cash Gain/loss | |||||||||||||||||
| Cash Balance at end of month | |||||||||||||||||
| Minium cash Balance desired | |||||||||||||||||
| Surplus cash (deficit) | |||||||||||||||||
| External Financing Summary | |||||||||||||||||
| External Financing Balance | |||||||||||||||||
| at start of month | |||||||||||||||||
| New Financing Required | |||||||||||||||||
| (negative amount from cash | |||||||||||||||||
| suplus (deficit) | |||||||||||||||||
| External Financing Requirement |
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