Cash Budget Method :-

Cash Budget Method :-

Cash budget method is used for assessing WC finance for seasonal industries like sugar, tea, etc. and for construction activity. The cash budget analysis is also used for sanction of ad hoc WC limits. In these cases, the required finance is quantified from the projected cash flows and not from the projected values of current assets and current liabilities. Under this method of assessment, besides the cash budget other aspects of assessment like examination of funds flow, profitability, financial parameters, etc. will be carried out as per the PBS method. Cash Budget is usually forecast of receipts and payments of an enterprise, drawn at small intervals of time, say monthly, weekly etc. A cash Budget is therefore a projection into future as against cash flow statement that is usually historical in nature. The Cash budgeting technique helps a decision maker in situations especially where borrower need short term credit. A few example of this situations are (I) Opening of letter of credit. (ii) Providing adhoc/contingent working capital facility, (ii) bill financing, (iv) financing construction activities, and (V) financing activities with seasonal fluctuations. Etc.