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Cash & Bank Debt

Financiers have only two possible cash positions. Either they have cash in the bank, which is listed as an asset and earns interest revenue or they have a bank loan, which is listed as a liability and interest is charged on this amount.

If a company is in a cash position and acquires an oil well for more money than it has cash available, the cash is reduced to zero and the company takes on a loan for the difference.

If a company is in a loan position and generates some cash flow for that OF Day, the cash is used to reduce the loan. If the cash flow is more than the loan, the loan is reduced to zero, and the difference goes into the cash account. If cash flow is negative, the financier adds the shortage to the bank loan.

There is no limit as to how far a financier can go into debt. However, if the interest payments are too large, the financier risks driving his share price to zero and being eliminated from the seminar.

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