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Cash Management: Semester II

Cash management involves planning and managing a firm's cash inflows and outflows to maintain sufficient cash levels. It aims to finance cash deficits and invest cash surpluses. There are three motives for holding cash: transaction, precautionary, and speculative. Cash budgets forecast expected cash receipts and payments over a period. Techniques like lock-box systems can accelerate cash collections from customers. When investing surplus cash, firms consider criteria like safety, liquidity, yield, and maturity and have options like fixed deposits, treasury bills, and money market schemes.

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Rahul Shukla
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32 views

Cash Management: Semester II

Cash management involves planning and managing a firm's cash inflows and outflows to maintain sufficient cash levels. It aims to finance cash deficits and invest cash surpluses. There are three motives for holding cash: transaction, precautionary, and speculative. Cash budgets forecast expected cash receipts and payments over a period. Techniques like lock-box systems can accelerate cash collections from customers. When investing surplus cash, firms consider criteria like safety, liquidity, yield, and maturity and have options like fixed deposits, treasury bills, and money market schemes.

Uploaded by

Rahul Shukla
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Cash Management

Semester II

WHAT IS CASH MANAGEMENT?


Cash is the money which a firm can disburse immediately without any restriction Cash management is concerned with managing of: Cash flows into and out of the firm; Cash flows within the firm; Cash balances held by the firm at a point of time (by financing deficit or investing surplus cash)

FACETS OF CASH MANAGEMENT


Cash Planning Managing the Cash Flows Optimum Cash Level Investing Surplus Cash

MOTIVES FOR HOLDING CASH


Keynes identified three possible motives for holding cash : Transaction motive Precautionary motive Speculative motive

CASH BUDGET
Cash Budget is a summary statement of the firms expected cash inflows and outflows over a projected time period The principal method of short-term cash forecasting is the receipts and payment method. Under this method, the cash forecast shows: timing and magnitude of cash receipts disbursements over the forecast period.

REPORTS FOR CONTROL


To enhance the efficiency of cash management, collections and disbursements must be properly monitored. Daily Cash Report Monthly Cash Report

TECHNIQUES TO ACCELERATE FIRMS COLLECTIONS


Cash collections can be accelerated by reducing the lag or gap between the time a customer pays bill and the time the cash is collected and funds become available for the firms use For this purpose, a firm can use: decentralized collection system lock-box system

CRITERIA FOR EVALUATING INVESTMENT OPTIONS


Safety Liquidity Yield Maturity

INVESTMENT OPTIONS
Fixed deposits with banks Treasury bills Mutual fund schemes Money market schemes Commercial paper Certificates of deposit Inter-corporate deposits

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