Module IV· Cash FlowIntermediate
Question
What is 'minimum cash' and why is it taken into account in the Cash Sweep?
Answer
Mechanics
Minimum cash is the minimum liquidity the target needs for ongoing operations — typically 1-2% of revenue (higher with seasonality).
Deep diveShow more details
Example
MidCap Pharma Inc, revenue $300m, minimum cash 2% = $6m.
| Year-end cash position | $m | Available for sweep |
|---|---|---|
| Total Cash | 18 | -- |
| Minimum Cash | 6 | not available |
| Excess Cash for sweep | 12 | -- |
Consequence
The model sets minimum cash as a floor — the Cash Sweep only takes cash above that level. If the modeler forgets the floor, liquidity is understated and amortization overstated.
Common pitfalls
In seasonal businesses (e.g. consumer goods with a Q4 peak) year-end cash is not representative. Clean models use average cash (12-month mean) as the floor basis.
Pitch tip
Seniors test 'How high is your min-cash floor?' — the answer should be justified by sector, not set as a blanket figure. Pharma 1.5%, construction 3%, IT services 0.8% are typical values.