Cash management

Presented by: Ajit Kumar Roy Apoorva Firdaus Jamal Jai Singh Rathore Twinkle Vijwani

what is cash ?
Cash is the ready money in the bank or in the business. It takes cash on hand or in bank to pay suppliers, to pay the rent and to meet the payroll. It is not inventory, not account receivables, not property. These might be converted to cash at some point in time.

WHAT IS CASH MANAGEMENT ?

Plan, manage, monitor, and control cash flows in order to create an acceptable balance between holding too little and too much cash. It is a set of strategies or techniques of company which uses to collect, track and invest money. In cash management, companies also work with cash equivalents such as checks.

Objectives of cash management

1) To ensure the availability of cash for day to day operation. 2) To reduce the need to borrow and if needed, to borrow at lower interest costs. 3) To minimize idle cash balances. 4) To maximize the return on surplus funds. 5) To reduce bank charges and keep transaction costs as low as possible.

Benefits of cash management system

Cash is the lifeline of any business. Maximize the availability of cash through managing collections and disbursements. Cash is used to procure inputs, from which output is produced. Helps business process receipts and payments in an organized and efficient manner.

services offered as a part of Cash Management

Collection Products Payment Products
o Cheque Collections o Cash Collections
o Issue of Bulk Demand Drafts/ Pay orders o Issue cheques on behalf of Banks Customers o Payment of dividend warrants/ interest warrants/ refund order/redemption payments/brokerage payments

Liquidity Management
o Netting o Pooling o Cash Concentration

Motive for holding cash

Transactions motive Need of cash for the current

transaction of personal and business exchanges.

Precautionary motive

To hold a certain amount of cash for unforeseeable and unexpected expenses that cannot be covered by standard risk management instruments like insurance.

CONtD.
Speculative motive

Securing profit for extraordinary

economic circumstances like financial crises and bubble bursts.

OPTIMUM OPERATING CASH BALANCE MODEL ON THE BASIS OF:

CERTAINIT -IES

BAUMOLS MODEL BERANEK MODEL

UNCERTAI -NITIES

MILLERS ORR MODEL STONE MODEL

OPTIMAL CASH BALANCE via BAUMOLS MODEL

50000000 1002 504 339.3333333 258 210

M = $10,000
Cost ($)

r = .01% .0001

TC = $20

Z*= [(2M*TC)/r] Z*

Total Costs Holding Costs: (Z/2)*r

Z = $63,246

Order Costs:(M/Z)*TC

Z*

Order Quantity (Z)

BERANEK MODEL It is similar as BAUMOLS model the only difference is that in Beranek cash outflow is certain and cash inflows are gradual.

The miller- Orr model

The Miller-Orr Model provides a formula for determining the optimum cash balance (Z), the point at which to sell securities to raise cash (lower limit L) and when to invest excess cash by buying securities and lowering cash holdings (upper limit H). Depends on: transaction costs of buying or selling securities. variability of daily cash (incorporates uncertainty) return on short-term investments.

Comparative study

Comparison of five different industries

On the basis of Fertilizer Industry Textile industry Electronic Industry Food and Agri basedproducts industry Chemicals and Chemical products industry

Growth

Not significant Not significant

Not significant Not significant

Not significant Not significant

Not significant Not significant

Not significant Not significant

Cash

CONCLUSION If p-value is less than .05 then it is a significant for the industry. Growth rate should be greater than the cash requirement.

Thank you