The management of cash and marketable securities

Prepared by: WEI XIA(Veronica)

Introduction: Cash and marketable securities are the most liquid of a company¶s assets. Cash is the sum of the currency a company has on hand and the funds on deposit in bank checking accounts. .

In fact the survival of a company an depend on the availability of cash o meet financial obligation on time. .Cash is the medium of exchange that permits management to carry on the various functions of business organization.

It is can e sold quickly and converted into cash when needed and provide a firm with interest income. .Marketable securities consist of short-term investments a firm makes with its temporarily idle cash.

the optimal size of a firm¶s liquid asset balance.Cash management function: 1. 2. . The appropriate types and amounts of short-term investments a firm should make. 3. The most efficient methods of controlling the collection and disbursement of cash.

A firm holds liquid asset balances for the following primary reasons: 1) To conduct transitions 2) For precautionary purposes 3) To meet future requirements 4) For speculative reasons 5) To compensate its bank or banks for various services rendered .

. a firm must first develop a cash budget showing all of the forecasted cash inflows and outflows over the planning horizon. A firm¶s optimal liquid asset balance reflects risk and return trade-offs and depends on both the opportunity cost of holding excess balance and the ³ shortage ³ costs associated with not having enough needed cash available.To manage cash effectively.

wire transfers. Methods for reducing collection time include decentralized collection centers and concentration banks. depository transfer checks. special handling of large remittances. and the use of preauthorized checks. .The primary objective in controlling cash collection is to reduce the delay between the time when the customer mails the payment and when it becomes a collected balance. lockboxes.

maximizing check-clearing float. using drafts rather than checks.The primary objective in controlling cash disbursements is to slow payments and keep the firm¶s funds in the bank as long as possible. Techniques for slowing disbursements include scheduling and centralizing payments ( zero-balance systems). . and stretching payables.

maturity date.Electronic funds transfer mechanisms. increasingly will reduce the importance of float management techniques. marketability (or liquidity). . The primary criteria a firm should use in selecting marketable securities. including the use of wire transfers and automated check clearinghouses. and rate of return. include default risk.

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