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Hedge fund question: Do you know what “cash 22” means?

(Last Updated On: November 10, 2011)

Hedge fund question: Do you know what “cash 22” means?

 

I think you mean “catch 22”

 

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I’m not sure… I found the term “cash 22” in private equity text book…

 

It’s hard to say without any context. If you told us the title of the book, the paragraph of text around the word. that may help.

Initially I also thought along the same lines as James “catch 22”

“A Catch-22, coined by Joseph Heller in his novel Catch-22, is a logical paradox arising from a situation in which an individual needs something that can only be acquired with an action that will lead him to that very situation he is already in; therefore, the acquisition of this thing becomes logically impossible. Catch-22s are often spoken with regard to rules, regulations, procedures, or situations in which one has knowledge of being or becoming a victim but has no control over it occurring.”

see http://en.wikipedia.org/wiki/Catch-22_(logic)

It may have been a typo (typing error), but without any context its hard to say.

It’s a famous novel by Joseph Heller. For example the hero Yossarian was navigator on a bomber in world war II. We wanted to see the commanding officer – Major Major Major. He was told that he couldn’t see Major Major Major because he was in his office but as soon as he left his office he could go in. That’s catch 22

 

I think it may also be a take off of Catch 22, referring to the situation when you need to spend cash to get cash, which you need because you do not have enough right now. Same idea as Catch 22 but referring to a cash flow shortage situation.

 

This is a great phrase. Let me give you an example. A company has cash constraints and is at the borrowing limits. It needs to make payroll, Knowing I can borrow 85% on receivables I offer free freight and special discounts to customers to buy things I can ship today. I ship today and immediately borrow against the receivable. Now with the cost of free freight and the discount, I only realize 10% margin. I made payroll, but I’m deeper in the hole……….. A “Cash 22″
Oh and by the way I have to pay 10% interest on the borrowed funds. I tell myself I will; get it back next month when sales pick up. Sales don’t pick up because the customer to whom I gave the special deal actually bought ahead so they don’t need to buy next month……”Cash 22″
I know, I’ll offer deeper discounts so I can make payroll this week……..”Cash 22”

This is not an imaginary scenario. It is happening right now.

 

 

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