Minimum/Operating Cash
Hello Monkeys,
Ive been working on building models from scratch pulling from 10Ks. However I noticed that all of my reference models have an operating/minimum cash line item, usually either as a constant or as a % of Rev. I understand the point of this line item (Subtract it from excess cash in order to get available cash for debt pay-down), but how do you find this on the 10K?
Obviously it's not a line item, so is there some rule of thumb for estimating operating/minimum cash?
Thanks!
I’ve used 30 or 60 days worth of operating expenses as a simple method here.
To add:
Logic behind this is that you need cash on hand to help cover gaps in your cash conversion cycle. If you pay your vendors faster than you collect from your customers, you will need cash to cover the vendor payments until you can collect on your sales.
The 30 to 60 days of operating expenses as a simple method is because most vendors will want to be paid within 30 or 60 days.
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