Hey everyone,
If you are doing an LBO modelling test involving a hypothetical transaction taking place on a cash-free debt-free basis, clearly there is a need to fund a minimum cash balance (i.e. include a minimum cash balance in the Uses section of your S&U).
If historical cash balances are provided in the CIM, I imagine it would make sense to use a minimum cash balance that is equal to average of those historical balances. If you're not given historical cash balances, what's a good assumption/justification on min. cash? Maybe something close to the latest trading working capital balance?
Thanks!
I think avg. of historical cash balances is a good way to think about it. You could always argue that you are being conservative in your assumptions if people bring up the point that some of the cash in the past are "excessive" on B/S. Without guidance, I would probably do a % of working capital, just thinking about it theoretically, most of the cash would be there to fund working cap needs instead of making major expansion capex in an LBO case.
Would love to hear any other thoughts!
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