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Questions and Answers
What is a cash deficit?
What is a cash deficit?
What is the difference between the cash surpluses of Drif Co and Guide Co?
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 necessary for a company to make a capital investment?
What is the difference between different types of debt?
What is the difference between different types of debt?
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What is often necessary to distinguish different kinds of cash transactions?
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.
