Sources and Uses
Is it standard practice in the industry to put minimum cash to balance sheet as a use in the S&U section? Have seen it done both ways. Thanks.
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Based on the most helpful WSO content, it's not standard practice to specifically list "minimum cash" as a separate line item in the Sources & Uses (S&U) section of financial models or transaction summaries. The S&U section typically outlines the sources of funds (e.g., debt, equity) and their applications (e.g., purchase price, fees, repayment of existing debt), focusing on the transaction's financial structure.
However, it's essential to ensure that the company has sufficient liquidity post-transaction, which is where the concept of minimum cash comes into play. This is more of a consideration in the overall financial modeling and planning rather than a line item in the S&U. The need for minimum cash might influence the amount of debt raised or equity contributed to ensure the company operates effectively post-transaction.
In some cases, practitioners might include a minimum cash balance in the uses section to explicitly account for the liquidity needed for the company's ongoing operations. This approach can vary based on the transaction's specifics, the company's cash flow characteristics, and the preferences of the financial modelers or deal team.
In summary, while not a universal standard, including minimum cash in the S&U can be a prudent practice in certain contexts to highlight the need for operational liquidity post-transaction. It's more about the modeler's discretion and the specific transaction requirements.
Sources: Minimum Cash and its effect on Equity Value, January 2016 Data Update 7: Dividends, Potential Dividends and Cash Balances, Minimum Cash Balance Question, PE interview question: sources & uses, The Three Most Common Technicals
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