Financial Slack
Short definition
Financial slack is the combined room from the cash buffer, committed lines and unused debt capacity. It is the first stock used in a shock or an opportunity; it is not a P&L reserve.
Detailed explanation
Slack also carries an agency cost: surplus cash can be wasted. The target is therefore not unlimited cash, but a band that covers a stressed 13-week plus a small opportunity slice.
Pecking-order makes internal finance possible while slack exists. When slack is gone, constraint and rationing start. Dividends are how slack is returned to holders.
Why it matters for the CFO
In a crisis year slack delays a fire sale and a forced equity issue. Too much of it inflates WACC with a low-yielding cash asset.
How to read it
Slack = usable cash + committed undrawn + unused capacity − minimum cash. Trapped and encumbered cash drop out of the numerator.
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Definitions are educational. They are not investment, credit or tax advice.