A company’s cash needs fall into three categories: (1) cash for day-to-day transactions, (2) reserve cash to meet contingencies, and (3) cash for compensating balance requirements. To estimate reserve cash requirements, the cash flow manager can tabulate the daily or weekly changes in the cash amount. These changes will range from some very large changes to small fluctuations. Because the major cash flow problem is running short of cash, the financial manager is especially interested in large decreases and thus might select a reserve balance that would meet all but the largest historic cash decreases.