CBM Cash Flow Analysis and Financing

This document provides a detailed solution to a practical finance assignment concerning CBM's cash flow analysis. It addresses whether the company needs outside financing, calculates the minimum line of credit required, assesses CBM's cash position during the budget period, and evaluates the company's suitability as a bank client. The analysis reveals that CBM will need outside financing in April, May, June, and July, with a minimum credit line of $248,000. The company is expected to experience cash shortages in March, April, and June, but its cash position is projected to improve after June, allowing for repayment of borrowed amounts. The solution concludes that CBM could be a viable client for a bank, provided the bank is willing to wait for at least six months for repayment.

1. Will the company need any outside financing?
Answer. Yes, in the months of April, May, June and July, the company will need differing amounts of
outside financing.
2. What is the minimum line of credit that CBM will need?
The company will need to borrow $120,000 in April, $114,500 in May, $17,250 in June, and $248,000
in July. The minimum credit line to be arranged must be such as to satisfy CBM’s highest borrowing
needs. Thus, at a minimum the line of credit that CBM will surely need is $248,000.
3. What do you think of CBM's cash position during the budget period? Do you see any concerns for
the company in this regard?
During the budget period, the months of March, April and June are expected to end with cash
shortages. Of these months, June is expected to end up with the worst cash shortage but it must be
noted that this cash shortage would have been reduced if tax payments and investment in plant
were not to occur. In all other months, CBM is expected to end with cash excess.
4. If you were a bank manager, would you want CBM as your client? Why or why not?
Not considering the cash outflows attributable to repayments of borrowed amounts, the cash
budget indicates CBM’s cash situation to get better after June. With better cash flows from July, CBM
would be in a position to start repaying. The accumulated total borrowings of the four months would
get repaid within two months starting from July. This response, however, is based on the assumption
that the bank can wait for at least 6 months (which is a short term) before it can expect to get
repaid. In this situation, I would contemplate having CBM as my client.