Cash Budget

CASH BUDGET

Developing the cash budget

The cash budget must include all cash inflows and payments from the three types of activities: operating, investing, and financing.
First, it is important to estimate inflows and outflows for operating activity since the results of planning operating activities will determine investment needs and financing requirements.
Cash outflow planning for investing activities are based on expected capital acquisitions and other investment plans (e.g., share purchases). The cash inflows from investing activities are based on expected cash receipts from the sale of capital assets and other long-term investments.
Cash flow planning for financing activities reflects the company's expectations with regard to the issuance or repurchase of its own shares or the borrowing or repayment of bank loans.

Inputs to the cash budget

When planning the cash budget, the following factors must be taken into account:

Analysis of cash flow

Analysis of collection period of accounts receivable

Analysis of accounts payable

Tax laws

Inflation effects

Interest rates

Dividend policy