PRESENTED BY: VIKAS KUMAR VARSHA VIKAS KUMAR SINGH VARUN SHARMA

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INTRODUCTION:
‡ Management is driven completely by the amount of cash that goes into this business and the amount of cash that goes out, ‡ Important current assets for operations. ‡ Cash includes:- coins , currency , cheques , balance in bank and some times near cash items .

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Cash Management
Cash Management is usually required by a group to carry out three classic missions: monitor the cash situation: forecasting the evolution of current receipts and payments. manage the cash balance: making up cash deficits at the lowest cost and investing excess cash with the best return and an acceptable degree of risk. conduct risk management for liquidity, rates and exchange.
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FACETS OF COST-MANAGEMENT
‡ ‡ ‡ ‡ It concern with managing of: Cash inflow into and out of the firm. Cash flow with in the firm. Cash balance held by the firm at a point of time by financing deficit or investing surplus cash.

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CASH COLLECTIONS BUSINESS OPERATIONS DEFICIT BORROW

INFORMATION AND CONTROL

SURPLUS

INVEST

CASH PAYMENTS

CASH MANAGEMENT CYCLE

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MOTIVE OF CASH HOLDING
‡ ‡ ‡ ‡ THREE MOTIVE OF CASH HOLDING. THE TRANSACTIONS MOTIVE. PRECAUTIONARY MOTIVE. SPECULATIVE MOTIVE.

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TRANSACTION MOTIVE:‡ Require a firm to hold cash to conduct its business in the ordinary course. ‡ Firm need cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends etc.

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PRECAUTIONARY MOTIVE :‡ Need to hold the cash to meet contingencies in the future. ‡ It provides the cushion or buffer to with stand some unexpected emergency.

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SPECULATIVE MOTIVE:‡ Relates to holding of cash for investing in profit-making opportunities as and when they are arise. ‡ The opportunities to make profit may arise when the securities prices change. (the firm hold cash when it is expected that interest rates will rise and security prices will fall and vice versa)
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CASH PLANNING
‡ Cash planning is technique to plan and control the use of cash. ‡ It protects the financial condition of the firm by developing a projected cash statement from a forecast of expected cash inflow and out flows for a given period.

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Cash forecasting and budgeting
‡ Cash budget is an important device to plan for and control cash receipts and payments. ‡ It is a summary statement of firm expected inflows n outflows over a projected time period. ‡ Cash forecast are needed to prepare cash budget it is done on basis of short and long term .
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Short term forecast
‡ It is comparatively easy to make short term forecasts. And following functions are:‡ it helps in determining the cash requirement for pre determine period to run a business. ‡ To anticipate short term financing. ‡ To manage investment of surplus cash.
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LONG TERM FORCASTING
‡ It prepare to give and idea of company s financial requirement in the distant future. ‡ Uses of long term cash forecast. (it indicates companies future financial need specially working capital requirement). ‡ It help to evaluate proposed capital projects. ‡ It helps to improve corporate planning.
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Forecasting methods
both can use these following methods:-

‡ The receipt and disbursement method
‡ it forecast for limited period.(1 week or 1 month) ‡ It used for comparing cash flows with budgeting income and expense items. ‡ It is used for continuous basis. ‡ Prime aim is to summarise flows during a predetermined period. ‡ It gives complete picture of all expected items. ‡ But it does not highlight movements in W C M. ‡ AND reducing its reliability.(delay or over demand)

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‡ The adjusted net income method: ‡ It is preferred for longer period.(few month to years) ‡ It is appropriates in showing working capital and future financing needs. ‡ It help in anticipating a firm s financial requirement. ‡ It is to project company s need for cash at a future date. ‡ And to show require funds if not generate then it borrowed or raised in the capital market. ‡ But it fails to trace cash flows.
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Case study
‡ Suppose that a firm makes 80% of its sales on a 30-day credit. Its actual experience shows that 80 per cent of debtors are realised after 1 month & 20 per cent after 2 month after goods sold. with this information, the expected cash receipts from sales can be calculated if sales forecast are available. For example, sale receipts for january, february, march and april are calculated in table 1 on basis of assumed sales forecasts.
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TABLE NO.1

(Rs 1000) AUTUAL NOV DEC TOTAL SALES CREDIT SALES (80%) COLLECTIONS ONE MONTH TWO MONTH CASH SALES TOTAL SALES RECEIPTS -------320 ---384 80 464 110 574 352 96 448 132 580 422 88 510 140 650 448 106 554 200 754 500 400 600 480 JAN 550 440 FORECAST FEB MAR 660 528 700 560 APR 1000 800

TOTAL COLLECTIONS

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Conclusion (case-study)
‡ Table shown that total sales for january are estimated to be Rs 550 of which 80 % ( i.e., Rs 440) are credit sales and (20% i.e.,110) are cash sales. Sales of other month are shown in same way. ‡ Easily noted that cash receipts from sales will be affected by changes in sales volume and the firm s credit policy.
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Optimum cash balance
‡ One of the primary responsibilities of financial manager is to maintain sound liquidity position of the firm so that the dues are settled in time. ‡ A firm maintains operating cash balance for transaction purposes. ‡ The firm should maintain optimum-just enough, neither too much nor too little -cash balance.
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Baumol s model-under certainty
‡ It provide formal approach for determining firms optimum cash balance under certainty Assumptions:‡ The firm is able to forecast its cash need with certainty. ‡ Cash payment occur uniformly over a period of time . ‡ The opportunity cost of holding cash is known and does not change over time. ‡ The firm will incur the same transaction cost whenever it converts securities to cash . it does not allow cash flow to fluctuate . so we have another model.
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CASH BALANCE

C

C/2

AVERAGE

0

TIME T1 T2 T3

BAUMOL S MODEL FOR CASH BALANCE
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Miller orr model- uncertainty
‡ It over come the short coming of Baumol model as it allow daily cash flow variations. ‡ It assume that net cash flows are normally distributed with 0 value of mean n standard deviation. ‡ It provide two control limit upper n lower as well as a return point. ‡ Lower control limit is being set to maintain minimum cash balance.
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Cash balance

Upper limit Purchase of securities Return point Lower limit

Sale of securities

time

MILLER-ORR MODEL
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‡ ‡ ‡ ‡
‡

The difference between the upper and the lower limit depends on following factor : The transaction cost. The interest rate. Standard deviation of net cash flows. Formula : for determining distance between upper and
lower control limits (called Z)
Where , c=transaction cost, a = cash flow variance, i=I nterest rate.

‡ z = (3/4 X c a2/i)1/3

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conclusion
‡ cash is require to meet firms transaction n precautionary need . It is also being maintain for taking the advantages or speculative changes in price of input and output .and it also help in making the trade off between liquidity and profitability.

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BIBLIOGRAPHY
‡ Financial management by I.M PANDEY

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