CASH MANAGEMENT

INTRODUCTION:

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm. The firm
should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s
manufacturing operations while excessive cash will simply remain idle, without contributing
anything towards the firm’s profitability. Thus, a major function of the financial manager is
to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction. The term
cash includes coins, currency and cheques held by the firm, and balances in its bank accounts.
Sometimes near-cash items, such as marketable securities or bank deposits, are also included
in cash. The basic characteristic of near-cash assets is that they can readily be converted into
cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind
of investment contributes some profit to the firm.
"Cash, like the blood stream in the human body, gives vitality gnd strength to business
enterprises. Though cash hold the smallest portion of total current assets. However, "Cash is
both the beginning and end of working capital cycle - cash, inventories, receivables and cash.'
it is the cash, which keeps the business going. Hence, every enterprise has to hold necessary
cash for its existence. Moreover, "Steady and healthy circulation of cash throughout the entire
business operations is the basis of business solvency." A Now-a-days non-availability and
high cost of money have created a serious problem for industry. Nevertheless, cash like any
other asset of a company is treated as a tool of profit." Further, "today the emphasis is on the
right amount of cash, at the right time, at the right place and at the right cost. In the words of
R.R. Bari, "Maintenance of surplus cash by a company unless there are special reasons for
doing so, is regarded as a bad sigh of cash management. As, "holding of cash balance has an
implicit cost in the form of its opportunity cost.
Cash may be interpreted under two concepts. In narrow sense, Cash is very important
business asset, but although coin and paper currency can be inspected and handled, the major
part of the cash of most enterprises is in the form of bank checking accounts, which represent
claims to money rather than tangible property. While in broader sense, Cash consists of legal
tender, cheques, bank drafts, money orders and demand deposits in banks. In general, nothing
should be considered unrestricted cash unless it is available to the management for
disbursement of any nature. Thus, from the above quotations we may conclude that in narrow
sense cash means cash in hand and at bank but in wider sense, it is the deposit in banks,
currency, cheques, bank draft etc. in addition to cash in hand and at bank. "Cash management
includes management of marketable securities also, because in modern terminology money
comprises marketable securities and actual cash in hand or in bank. The concept of cash
management is not new and it has acquired a greater significance in the modern world of
business due to change that took place in the conduct of business and ever increasing
difficulties and the cost of borrowing. Apart from the fact that it is the most liquid current
assets, cash is the common denominator to which all current assets can be reduced because
the other current assets i.e. receivables and inventory get eventually converted into cash. This
underlines the significance of cash management.

MEANING AND DEFINITION:

The term cash management refers to the management of cash resource in such a way that
generally accepted business objectives could be achieved. In this context, the objectives of a
firm can be unified as bringing about consistency between maximum possible profitability
and liquidity of a firm. Cash management may be defined as the ability of a management in
recognizing the problems related with cash which may come across in future course of action,
finding appropriate solution to curb such problems if they arise, and finally delegating these
solutions to the competent authority for carrying them out The choice between liquidity and ij
profitability creates a state of confusion. It is cash management that can provide solution to
this dilemma. Cash management may be regarded as an art that assists in establishing
equilibrium between liquidity and profitability to ensure undisturbed functioning of a firm
towards attaining its business objectives.
NEED AND IMPORTANCE OF THE STUDY

The importance of Cash management in any industrial concern cannot be overstressed. Under
the present inflationary condition, management of Cash is perhaps more important than even
management of profit and this requires greatest attention and efforts of the finance manager.
It needs vigilant attention as each of its components require different types of treatment and it
throws constant attention on exercise of skill and judgment, awareness of economic trend etc,
due to urgency and complicacy the vital importance of Cash. The anti-inflationary measure
taken up by the Government, creating a tight money condition has placed working capital in
the most challenging zone of management and it requires a unique skill for its management.
Today, the problem of managing Cash has got the recognition of separate entity, so its study
and management is of major importance to both internal and external analyst to judge the
current position of the business concerns. Hence, the present study entitled “An Analysis on
Cash Management” has been taken up.

OBJECTIVES OF THE STUDY

 To analyze the cash management of HDFC BANK LIMITED.

 To find out the liquidity position of the concern through ratio analysis.
 To study the growth of HDFC BANK LIMITED. in terms of cash flow statement.
 To make suggestion and recommendation to improve the cash position of HDFC
BANK LIMITED.
RESEARCH METHODOLOGY

RESEARCH
Research is a process in which the researchers wish to find out the end result for a
given problem and thus the solution helps in future course of action. The research has been
defined as “A careful investigation or enquiry especially through search for new facts in
branch of knowledge”

RESEARCH DESIGN

The research design used in this project is Analytical in nature the procedure using,
which researcher has to use facts or information already available, and analyze these to make
a critical evaluation of the performance.

DATA COLLECTION
 Primary Sources
1. Data are collected through personal interviews and discussion with Finance-
Executive.
2. Data are collected through personal interviews and discussion with Material
Planning- Deputy Manager.
 Secondary Sources
1. From the annual reports maintained by the company.
2. Data are collected from the company’s website.
3. Books and journals pertaining to the topic.

4.4 TOOLS USED IN THE ANALYSIS

 Cash flow statement

 Trend analysis
 Ratio analysis
 SCOPE OF THE STUDY

It helps to take short term financial decision.

It indicates the cash requirement needed for plant or equipment expansion programmes.
To find strategies for efficient management of cash.
It helps to arrange needed funds on the most favorable terms.
It helps to meet routine cash requirement to finance the transaction.
It reveals the liquidity position of the firm by highlighting the various sources of cash and its
uses.

LIMITATIONS OF THE STUDY

The study is restricted only to HDFC BANK LIMITED. Being a case study, the findings
cannot be generalized.
The study does not take into account the inflation.
The study takes into account only the quantitative data and the qualitative aspects were not
taken into account
 REVIEW OF LITERATURE

1. Sudarsana Reddy, Raghunatha Reddy and Mohan Reddy (2006) examined the
internal funds availability for financing fixed assets in paper industry of Andhra
Pradesh. The study found that the owner's funds were insufficient to finance fixed
asset and observed that fixed assets do not have significant relationship with the sales.

2. Deloof (2003) discussed that most firms had a large amount of cash invested in
working capital. It can therefore be expected that the way in which working capital is
managed will have a significant impact on profitability of those firms. Using
correlation and regression tests he found a significant negative relationship between
gross operation income and the number of days accounts receivable, inventories and
accounts payable of Belgian firms. On basis of these results he suggested that
managers could create value for their shareholders by reducing the number of days'
accounts receivable and inventories to a reasonable minimum. The negative
relationship between accounts payable and profitability is consistent with the view
that less profitable firms wait longer to pay their bills.

3. Ratnam, Indra Doraiswamy, Seshadri and Rajamanickam (1992) in their study on

"Cost Control in Spinning Mills", examined the various costs and factors affecting
profits and suggested measures for cost control and recovery from sickness in
spinning mils. The study found that the raw material cost was higher than all other
costs. The profitability was low and variation in profits was greater. The study also
suggested short-term and long-term measures in finance, productivity, technical and
maintenance to improve their working and reduce losses.

4. Braj kishor (1978)in his paper attempted to give a general frame work to analyze
working capital policy issues both for public enterprises and private business firms.
He analyzed the financing of current asset first. The alternatives of long term tests and
current liabilities have been evaluated on the basis of cost and risk. A hypnotically
numerical examples illustrated the risk return trade off while doing so, an a attempt
104 was made to incorporate subjective publishers of risk free rates, so that expected
interest after a time period could be established this would then enable a decision with
regard to whether a conservative aggressive or moderate current liability policy
 should be pursued. A similar exercise was then repeated for the current assets, fmally,
two exercises would be merged together so that an interpreted policy decision both for
current assets and current liabilities emerges.

5. Leonke (1970) in his paper has critically evaluated the current ratio and he proposed a
new liquidity index which is defined as the ratio of the projected practical maximum
rate of at flow. The projected and retrospective indexes and this variants were
presented as a basis for discussion for the purposes of internal financial analysis. The
projected liquidity flow index or some refinement and modulation of it should be
computed for shorter periods as a supplement of cash budget data since the requisite
information should be readily obtainable. For the external analyst, a projected index
would also be a more desirable substitute for the current ratio than a retrospective
index. According to Lemke, many firms do not prepare formal forecasts of cash flow
data even for internal purposes. The liquidity flow index seems to promises a
significant improvement over the current ratio.
 REFERENCES

Sudarsana Reddy, Raghunatha Reddy and Mohan Reddy, " A Financial Performance of Paper
Industry, Management Accountant, 2006, PP.280 — 286.

. Deloof. M "Does working capital management affects profitability of Belgian firms" Journal
of business finance of accounting vol 30 No. 3 &4, 2003, PP 573 — 587.
Ratnam, Indira Doraiswamy, Seshadri and Raja Manickam, " Working Capital — Its
Management and Control, London Mac Donald and Evans Limited 1992, PP.189 — 56 — 62
Braj Kishor, "Working Capital Policy — A general Frame Work of Analysis", The
Management Accountant, July 1978,.PP. 579-584
Leonke Kenneth W. " The Evaluation of Liquidity. An analytical study." Journal of
Accounting Research Vol.8 No. 1 . Spring 1970, PP 47-77