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    Cash MGMT

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    Karthik Parmar
    Cash management involves managing a firm's cash flows, cash balances, and investing excess cash. There are four facets: cash planning, managing cash flows, determining the optimal cash level, and investing surplus cash. Firms hold cash for transactional, precautionary, speculative, and compensating motives. Objectives of cash management include meeting payment schedules, minimizing idle cash, and taking advantage of opportunities. Firms can accelerate cash collections through decentralized collection centers and lockbox systems. They control disbursements by delaying payments. The minimum cash balance depends on forecasting accuracy and ability to raise cash, while the maximum depends on investment opportunities and costs. Firms should hold enough cash for transactions and unexpected needs.

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    Cash MGMT

    Uploaded by

    Karthik Parmar
    40 views28 pages
    Cash management involves managing a firm's cash flows, cash balances, and investing excess cash. There are four facets: cash planning, managing cash flows, determining the optimal cash level, and investing surplus cash. Firms hold cash for transactional, precautionary, speculative, and compensating motives. Objectives of cash management include meeting payment schedules, minimizing idle cash, and taking advantage of opportunities. Firms can accelerate cash collections through decentralized collection centers and lockbox systems. They control disbursements by delaying payments. The minimum cash balance depends on forecasting accuracy and ability to raise cash, while the maximum depends on investment opportunities and costs. Firms should hold enough cash for transactions and unexpected needs.

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    its about cash management system and how it works with example

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    cash mgmt

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    Cash management involves managing a firm's cash flows, cash balances, and investing excess cash. There are four facets: cash planning, managing cash flows, determining the optimal cash level, and investing surplus cash. Firms hold cash for transactional, precautionary, speculative, and compensating motives. Objectives of cash management include meeting payment schedules, minimizing idle cash, and taking advantage of opportunities. Firms can accelerate cash collections through decentralized collection centers and lockbox systems. They control disbursements by delaying payments. The minimum cash balance depends on forecasting accuracy and ability to raise cash, while the maximum depends on investment opportunities and costs. Firms should hold enough cash for transactions and unexpected needs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    40 views28 pages

    Cash MGMT

    Uploaded by

    Karthik Parmar
    Cash management involves managing a firm's cash flows, cash balances, and investing excess cash. There are four facets: cash planning, managing cash flows, determining the optimal cash level, and investing surplus cash. Firms hold cash for transactional, precautionary, speculative, and compensating motives. Objectives of cash management include meeting payment schedules, minimizing idle cash, and taking advantage of opportunities. Firms can accelerate cash collections through decentralized collection centers and lockbox systems. They control disbursements by delaying payments. The minimum cash balance depends on forecasting accuracy and ability to raise cash, while the maximum depends on investment opportunities and costs. Firms should hold enough cash for transactions and unexpected needs.

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    of 28

    Financial management

    cia 3

    WHAT IS CASH?
    In narrow sense: currency and generally accepted equivalents of cash like cheques, drafts etc. In broad sense: includes near-cash assets, such as marketable securities and time deposits in banks. They can be readily sold and converted into cash.
    Can serve as a reserve pool of liquidity.

    Also provide short term investment outlet for excess cash.

    Cash management
    Cash management is concerned with the managing of:
    cash flows into and out of the firm, cash flows within the firm, and cash balances held by the firm at a point of time by financing deficit or investing surplus cash

    Four Facets of Cash Management

    Cash planning - Learn to Walk Before Running Managing the cash flows Optimum cash level Investing surplus cash

    Motives for holding cash

    Transaction motive Precautionary motive Speculative motive compensating motive

    Transaction motive
    Holding of cash to meet routine cash requirements to finance the transactions which a firm carries on in the ordinary course of business. Cash is held to pay for goods or services. It is useful for conducting our everyday

    Speculative motive
    Is a motive for holding cash/near-cash to quickly take advantage of opportunities typically outside the normal course of business. Positive and aggressive approach Helps to take advantage of:
    An opportunity to purchase raw materials at reduced price Make purchase at favorable prices Delay purchase on anticipation of decline in prices Buying securities when interest rate is expected to decline

    Compensating motive
    Is a motive for holding cash/near-cash to compensate banks for providing certain services or loans. Clients are supposed to maintain a minimum balance of cash at the bank which they cannot use themselves.

    Precautionary motive
    The cash balances held in reserve for random and unforeseen fluctuations in cash flows. A cushion to meet unexpected contingencies.
    Floods, strikes and failure of imp customers Unexpected slowdown in collection of accounts receivable Sharp increase in cost of raw materials Cancellation of some order of goods

    Defensive in nature

    Objectives of cash management


    Meeting payments schedule
    It prevents insolvency relationship with bank is not constrained Helps in fostering good relationships Cash discount can be availed Strong credit rating Take advantage of business opportunities Can meet unanticipated cash expenditure with a minimum of strain.

    Minimizing funds committed to cash balances


    High level of cash: large funds remain idle Low level of cash: failure to meet payment schedule

    Managing Cash Collections and Disbursements

    Accelerating Cash Collections Controlling Disbursements

    Accelerating Cash Collections


    1. Decentralised Collections number of collection centres Collection centres will collect cheques from customers and deposit in their local bank accounts They will deposit the funds to a central bank

    Accelerating Cash Collections Contd.


    2. Lock-box System
    Collection centers are established considering the customer locations and volume of remittances At each centre the firm hires a post office box Remittances are directly picked from the bank whom the firm gives the authority

    Advantages of lock-box system are


    cheques are deposited immediately upon receipt of remittances Eliminates the period between the time cheques are received by the firm and the time they are deposited in the bank for collection

    Controlling Disbursements

    It means delay the payments as much as possible. Can help the firm in conserving cash and reducing the financial requirements.
    Disbursement or Payment Float

    The size of the minimum cash balance depends on:

    How accurately managers can predict cash requirements. Cash budget helps in this .
    How quickly and cheaply a organization can raise cash when needed. How much precautionary cash the managers need for emergencies

    The organizations maximum cash balance depends on:

    Expected return on investment opportunities.


    e.g. If expected returns are high, organizations should be quick to invest excess cash

    Transaction cost of withdrawing cash and making an investment Demand for Cash for daily transactions Availability of (short-term) investment opportunities
    e.g. money market funds, CDs, commercial paper

    How much cash should a organization keep on hand?


    Enough cash to make payments when needed. (transactions motive)
    (Daily or Weekly Cash Budget helpful)

    Additional cash may be held for unexpected requirements. (precautionary motive)

    Centralized cash management involves transfer of an agencys cash in excess of minimal operating requirements into a centrally managed account also known as a cash pool. Procedure and Benefits

    Cash Pooling

    Investment of excess funds

    Competencies for Cash Management


    1. Explain what is meant by cash management and why it is critically important to hospitality operations. 2. Calculate the opportunity cost and effective interest rate when a compensating balance is required as part of a loan package. 3. Distinguish between income and cash flows. 4. Explain the function of and two approaches to cash budgeting.

    Competencies for Cash Management


    5. Explain how the following factors affect cash management: float, working capital, collection of accounts receivable, inventory control, current liabilities, trade credit, and cash discounts offered by suppliers. 6. Describe an integrated cash management system.

    Formula for Effective Interest Rate


    EIR = Annual Interest on Loan Loan Compensating Balance Requirement

    Factors to Consider When Investing Excess Cash


    Risk of losing the investment
    Rate of return Liquidity Brokerage cost Amount of time the funds are to be invested

    Lockbox System Breakeven Formula


    B = C / (I T)
    where C I T B = = = = Breakeven amount Bank charge per item Daily interest rate Change in time

    THANK YOU
    JUNAID KHAN 1010031 SHIJU V JOSEPH 1010076 HARSH K JAIN 1010030 MAYANK JAIN 1010080 LOKESH 1010032 PRATHIK 10100

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