Summary
Missouri Solvents is a regional distributor of liquid and dry chemicals. Revenues and profits have grown steadily. The sales growth has required the acquisition of additional fixed assets and current assets. Financing the additional assets has placed a strain on the firm's ability to raise capital. While the company ended last year with a healthy cash balance, there were many occasions during the year that it was necessary to obtain short-term bank loans in order to keep the company operating. As part of the firm's annual planning process, the finance and accounting staff prepare a projected income statement and balance sheet for the coming year. This year, Allen David, the company's chief financial officer, directed Fletcher Scott, the firm's budget analyst, to also develop a monthly cash budget in an effort to identify potential cash flow problems. The cash budget indicated that the company would need additional cash during the second quarter of approximately $2,000,000. Scott reviewed the cash budget with David and since the company's board of directors had expressed concern with the company's increasing use of debt financing, David was reluctant to increase the firm's bank borrowing even for a short period of time. Other alternatives for covering the projected cash shortfall must be evaluated.
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Extract
Missouri Solvents: Managing Cash Flow
INSTRUCTORS' NOTES
Case OverviewMissouri Solvents is a regional distributor of liquid and dry chemicals, headquartered in St. Louis. Growth has been steady with sales and profits have been growing. The sales growth has required the acquisition of additional fixed assets and current assets. Financing the additional assets placed a strain on the firm's ability to raise capital. There were many occasions during the prior year that it was necessary to obtain short-term bank loans in order to keep the company operating. To improve the firm's ability to manage its cash flow, Allen David, the company's chief financial officer, directed Fletcher Scott, the firm's budget, analyst to also develop a monthly cash budget.The cash budget ind...See the full content of this document
