BVX Knowledge Base
BVX Knowledge Base
M&A University

Cash Reserves @ YE (% of EBITDA)

Business owners and lenders do not like to see acquisition plans that leave no room for safety margin.  Banks use various financial ratios, like debt coverage ratios, interest coverage ratios, etc. to build safety margin for unforeseen circumstances.  Unfortunately these financial ratios do not have standard definitions. BVX implements this need for a safety margin by allowing the user to enter "cash reserve at year-end".  User provides input for minimum cash balance to be maintained at year-end as a % of EBITDA.

Quick Tips:

  •   Enter 10% for year-end cash reserve in the beginning.
  • Enter the amount of minimum cash balance to be maintained at the end of each year as a % of EBITDA.  Example: If EBITDA is 1000 and user enters 10% of EBITDA as a minimum cash balance, then BVX sets aside 100 as cash reserve and avails 900 of EBITDA to fund operations, debt service, dividends and taxes.
  • The Cash Reserve set aside is in addition to the Operating Cash  requirements of the business and the Excess Cash requirements of the buyer.
  • "Cash" line item on the balance sheet is the sum of Operating Cash, Cash Reserve, and Excess Cash.
  • Lenders often require minimum debt coverage ratios and minimum interest coverage ratios.  These ratios do not have standard definitions.  Financial Ratios schedule on the Overview screen shows pre-defined ratios and provides the ability to customize financial ratios.  Changing the amount of Cash Reserve in this cell changes the financial ratios.