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Why would a business manager use simulations in the cash budget process?

Why would a business manager use simulations in the cash budget process?

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Answer #1

The cash budget is a statement of the firm’s estimated of cash inflows and outflows based on firm's future plans. It helps to estimate its cash requirements.

Simulations are required in cash budget process to know the cash balance based on different strategies available for the company to adopt. For example- The sales forecast is the key variable in preparation of the cash budget. The company may want to know minimum sales they need to make to generate enough cash to run the business without any hiccups.

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