The firm must always have sufficient cash to pay for its operating expenses. Thus the policy of the firm for minimum cash is to have enough cash in any given month to pay for next month expenses.
Among the actions that management can take to ensure the solvency of the firm are measures to source short term funds from Banks, particularly when there are periods in which the cash flow shows that there will not be sufficient cash to cover running expenses.
So, investors want to know what action management can take in relation to obtaining bank loans, when and in which amount, in order to always dispose of the necessary cash to pay for operating expenses. Thus management has been asked by the Board to come up with a plan to obtain bank loans at the right opportunity and in advance of the month when there will be a cash deficit.
To analyse bank borrowing to have enough cash to always pay operating expenses proceed as follows:
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