Five readings of the same balance, all defensible, and each one belongs to somebody different. The mistake is never the arithmetic; it is using one reading to answer another reading's question.
The accounts say 214,000,000.00. The account the company actually pays from holds 68,400,000.00. Both are right, and between them sit three more figures that are also right. The distance is 145,600,000.00, which is 68.0374 per cent of the number the board will be shown.
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Start at the top and take things away. Each subtraction is a different kind of fact: a legal one, a geographic one, a policy one, a timing one.
| Reading | What is taken out | Who means this by “cash” | Amount |
|---|---|---|---|
| 1. Reported | nothing | the accounts, the auditor, the board deck | 214,000,000.00 |
| 2. Unrestricted | 9,000,000.00 pledged as collateral or held in escrow | the notes to the accounts | 205,000,000.00 |
| 3. Accessible | 53,000,000.00 behind exchange controls, a withholding tax or a partner's consent | the facility agreement | 152,000,000.00 |
| 4. Available | 31,392,000.00 of operating float — 6 business days of the company's own payments | the treasurer | 120,608,000.00 |
| 5. Same-day | 52,208,000.00 not yet transferred, in other time zones or value-dated tomorrow | whoever pays the invoice at noon | 68,400,000.00 |
The four subtractions are not of one kind, and it is worth being exact about that. The 9,000,000.00 is a legal fact: somebody else has a claim on it. The 53,000,000.00 is geographic: it is in the wrong place and the border has a toll on it. The 31,392,000.00 is a policy choice, and the company could choose differently. The rest is timing, and it is the only one of the four that cures itself overnight.
The company holds 6 business days of disbursements back. Disbursements run at 5,232,000.00 a day, so the float is 31,392,000.00. Move the policy and reading 4 moves with it.
| Days of float | Operating float | Available cash |
|---|---|---|
| 4 | 20,928,000.00 | 131,072,000.00 |
| 6 | 31,392,000.00 | 120,608,000.00 |
| 8 | 41,856,000.00 | 110,144,000.00 |
The reading is not an accounting curiosity. Net the three different figures against the same 550,000,000.00 of gross debt and the leverage ratio moves by more than half a turn.
| Cash netted | Net debt | Leverage | Headroom under 3.0000× |
|---|---|---|---|
| Reported cash — the board deck | 336,000,000.00 | 2.0000× | 1.0000 |
| Accessible cash — the facility agreement | 398,000,000.00 | 2.3690× | 0.6310 |
| Available cash — the treasurer | 429,392,000.00 | 2.5559× | 0.4441 |
| Board to treasurer | 0.5559 turns |
Trapped is a category, not a country. The test used here is operational: it cannot be brought to the group's concentration account within five business days without a cost or a third party's consent. On this balance sheet that is 53,000,000.00 — 47,000,000.00 behind exchange controls, approval queues and a withholding tax on dividends, and 6,000,000.00 that is a joint-venture partner's half and simply is not the group's to move.
Name the reading. “We have 214,000,000 of cash” is true and uninformative. “Reported 214,000,000; accessible under the facility 152,000,000; available 120,608,000; in the account this morning 68,400,000” is four sentences, each of which can be checked and each of which can be acted on. The cost of not naming it shows up in the gaps: reported to accessible is 62,000,000.00, and that is the gap a lender finds if the board's number reaches a covenant certificate.
On the company in this book, 120,608,000.00 of a reported 214,000,000.00 once restricted cash, trapped cash and the operating float are taken out — and only 68,400,000.00 is cleared in the account that makes payments this morning.
Cash that cannot be moved to the group's central account within five business days without a cost or a third party's consent: exchange controls, approval queues, a withholding tax on dividends, or a joint-venture partner. Here it is 53,000,000.00.
The facility's own: cash to which a group member has free and unrestricted access, not subject to security, and freely repatriable. On this balance sheet that is 152,000,000.00 rather than 214,000,000.00, which moves leverage from 2.0000× to 2.3690×.
This article is one calculation from Treasury Management. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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