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Questions and Answers
What is a cash deficit?
What is the difference between the cash surpluses of Drif Co and Guide Co?
What is necessary for a company to make a capital investment?
What is the difference between different types of debt?
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What is often necessary to distinguish different kinds of cash transactions?
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Study Notes
- A cash deficit is a shortage of available funds to satisfy current obligations.
- A cash surplus is a the value of cash over and above what is reqired to satisfy current obligations.
- A cash surplus may arise from seasonal factors, so that surpluses generated in good months are used to cover shortfalls later.
- The mere existence of a surplus in one or two months in a row is no guarantee of liquidity in the long term.
- Both Drif Co and Guide Co have cash surpluses, but Drif Co's surplus is more persistent due to its reliance on overdraft finance.
- In order to make a capital investment, a company may need to borrow money.
- Different types of debt have different risks for the company attached to them.
- A 'surplus' can sometimes be created by the way in which financial information is presented.
- It is often necessary to distinguish different kinds of cash transactions (eg capital payments).
- The company's cash requirements can fluctuate from month to month.
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Description
Test your knowledge of cash management, cash deficits, surpluses, capital investments, and financial risks associated with different types of debt.
