Finance Case Study: Precision Machines

Precision Machines is looking into the company’s future to determine their financial needs and, in order to do so, they are preparing a financial plan to see what they need and how they need to address future operations of the company. The financial plan they are creating is based upon the historical aspects of the company. This means that the company knows historically that their sales are 30% cash and 70% credit. They collect 50% of their credit sales the month after the sale and the other 50% of that month the second month thereafter. The cost of borrowing is 10% when they have a deficit and the company prefers to have $5,000 of cash on hand. The proceeding paper discusses the cash budge of Precision Machines, the cash management strategy, and economic and market forces. …show more content…
These two items can work hand in hand and allow the company to obtain and keep more of their profits. The reduction of 10% of the cost of materials in the first two months would save Precision Machines $9,000 and they would be able to keep that money as a profit and invest it into their capital expenditure. This will reduce the deficit and will continue to do so over time. At the same time, it will reduce the amount of money they will need to borrow to cover that deficit to keep operating. This means that they will also save the 10% cost of …show more content…
Although it is considered a broad term, cash management pertains to the collection, consolidation, and spending of cash. Cash management allows a company to widen their opportunity to balance an enterprise which regulates levels of liquidity, control cash flow, and investment