Double-digit Millions is Too Little Cash?

Hi MJ,

I am currently studying MCS with Astranti and although I was unable to attend your live masterclass a few weeks ago, I have since watched the recording. Thanks for this. It has been very useful.

I do have a question about the cash availability for the pre-seen company. The cash available on the balance sheet is $90 million. You mentioned that $90 million is very little and I was just wondering why this is exactly. I think you mentioned that it might not be enough to invest in a new company as an example. What is this based on though? How do we know that this isn’t enough funds to purchase a small company?

Your clarification on this matter is highly appreciated.

Bobby

double-digit-millions-is-too-little-cash


Good day Bobby

We considered $90 million as little funds due to the fact that our pre-seen company is a huge operation. To put it in perspective, the company generated almost $2 billion in revenues so to fund such an operation would require a massive cash float amount, $90 million now would rather seem small. The monies in cash cannot only be used for investment purposes as you also need to think about the day-to-day operational side of things.

However, this is of course, also based on whatever will come up on the unseen. You will need to weigh it in. If you are presented with an investment proposal that will cost $40 million, you could probably risk the available cash then. But I’d still rather not. When we look at medium to long-term strategies (expansion is one), you should analyse that the funding should also be medium to long-term in nature in terms of payback so you do not have cash flow issues down the line.

Hope this helps.

Your tutor
MJ

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