Three-statement integration
Cash sweep and revolver
Keep a minimum cash balance by drawing on a revolving facility in lean years and sweeping surplus cash to repay it — without a circular reference.
Learning objectives
- Calculate cash available before funding and the shortfall against a minimum cash balance
- Build a revolver that draws to fund shortfalls and repays from surpluses, within its limit and never below zero
- Charge revolver interest on the opening balance and explain why that avoids circularity
- Link the revolver into the cash flow and balance sheet and prove the model with checks
In the integrated model, cash is whatever is left over: if the business spends more than it generates, closing cash goes down — and in a heavy investment plan it can go negative, which is impossible. Real companies keep a minimum cash balance for day-to-day operations and fund shortfalls from a revolving credit facility (a revolver): a committed bank line they draw when cash is short and repay when it's surplus. Repaying debt from surplus cash is called a cash sweep.
This lesson models Rawdah Home Retail Co.'s store-acceleration case: capex of 150 and 140 in FY2026E–FY2027E and more working capital per riyal of sales. Rawdah Home Retail Co. is a fictional retailer; all figures are SAR millions and illustrative.
Available = Opening cash + Cash flow before revolver · Shortfall = Minimum cash − Available · Draw = MAX(−Opening revolver, MIN(Shortfall, Limit − Opening revolver))
- Cash flow before revolver
- CFO − capex − scheduled debt repayment − dividends (outflows negative)
- Shortfall
- positive: cash is needed (draw); negative: surplus (repay)
- MIN(…, Limit − Opening)
- never draw more than the undrawn facility
- MAX(−Opening, …)
- never repay more than is outstanding; extra surplus stays in cash
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.