Financial modelling terms explained

Cash Budget

A cash budget is a forecast of cash flow over a given period of time. It helps a business determine how much money it will have on hand at a given time. The cash budget is a very important tool for businesses because it allows them to know when and how much money they will have available to meet upcoming expenses.

What Is a Cash Budget?

A cash budget is a projection of a company's expected cash inflows and outflows over a specific period of time. This document is used to help managers make informed decisions about where to allocate their company's resources. The cash budget is especially important for companies that rely heavily on outside funding, as it can help them anticipate when they will need to seek additional financing.

How Do You Calculate a Cash Budget?

A cash budget is a projection of the expected cash inflows and outflows for a business over a specific period of time. The goal of a cash budget is to ensure that the business has enough cash on hand to cover its expenses.

To calculate a cash budget, you first need to track the expected cash inflows and outflows for the period. Inflows can include sales revenue, interest income, and rent payments. Outflows can include payments for employee salaries, inventory, and utilities.

Once you have tracked the expected cash inflows and outflows, you can calculate the projected cash balance for the period. This is the amount of cash that the business expects to have at the end of the period. If the projected cash balance is negative, the business will need to take action to bring in more cash or reduce its expenses.

What's the Difference Between a Cash Budget and a Profit and Loss Statement?

A cash budget is a projection of a company's expected cash inflows and outflows over a specific period of time. This document is used to track a company's actual cash position relative to its budgeted amount. A profit and loss statement, also known as an income statement, is a financial statement that shows how much revenue a company has generated and how much expenses it has incurred over a specific period of time. This document is used to assess a company's financial performance over a specific period of time.

Who Uses a Cash Budget?

A cash budget is a financial forecasting tool used by businesses to estimate their future cash flow. It helps businesses to identify and track their sources and uses of cash, and to make decisions about how to best manage their cash resources. The cash budget is typically used by businesses in the short-term, such as in the early stages of a new business or in the run-up to a major purchase or investment. It can also be used by businesses in financial distress to help them identify and address cash flow problems.

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