Group No.

: 09

How important is cash ?

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

Cash collections
Business Operations Deficit Surplus Information and Control Cash payments Borrow Invest

 Seeks

to accomplish this cycle at a minimum

cost Seeks to achieve liquidity and control Assumes cash management more importance than other CAs To maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in a profitable way

Cash Planning Managing the cash flows Optimum cash flows Investing surplus cash

The ideal Cash management system will depend upon on: o Firms product o Organization structure o Competition o Culture, etc

 The

transaction motive The precautionary motive The speculative motive

1. Transaction Motive:
Requires

a firm to hold cash to conduct its business in the ordinary course. To meet anticipated payments whose timing is not perfectly matched with the cash recepits.

2. Precautionary Motive
Provides

a cushion to withstand an unexpected emergency Precautionary amount of cash depends upon the predictability of cash flows and the firms ability to borrow at short notice when the need arises

3. Speculative Motive:
For

Investing in profit making opputunities as and when they arise. Opportunity to make arise when the security prices change.