Cash cycle
Cash management
Objectives
Financing
Managing Risk
managers establish systems that reduce holdings of non-earning cash balances to minimum levels while still providing adequate liquidity . Any excess cash balances are either invested to generate additional income or used to reduce interest expense through the repayment of debt.
company's ability to meet upcoming obligations in a timely and cost effective manner.
Cash managers assist in obtaining both short- and long-term borrowed funds in a timely manner and at an acceptable cost These credit facilities are used to fund a company's cash shortages.
Cash managers help in the monitoring and controlling of a company's exposure to interest rate, foreign exchange, and other risks.
Cash managers help ensure that managers in other areas of the company understand and implement policies that are consistent with cash management objectives.
Facets
Optimum cash level
Facets
Cash planning
cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should be prepared for this purpose
the flow of cash should be properly managed. The cash inflows should be accelerated while, as far as possible, the cash outflows should be decelerated. Managing the
cash flows
the firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.
the surplus cash balances should be properly invested to earn profits. The firm should decide about the division of such cash balance between alternative short-term investment opportunities such as bank deposits, marketable securities, or interInvesting corporate lending. surplus cash
Motive
Asset or Speculative Motive Precautionary Motive
cash is held to pay for goods or services. It is useful for conducting our everyday transactions or purchases.
Precautionary Motive
cash is a relatively safe investment. Cash investments rarely lose value (as can stocks or bonds) and are therefore held for safety reasons in a balanced portfolio.
There can be many variations on the reasons mentioned above, but these three reasons are perhaps the best overall explanation as to why cash plays an important role in any investor's portfolio. At a very practical level, we own cash investments to pay for our daily or monthly expenses. At a more strategic level, cash provides an investor with a way to control risk as well as gain a return on their investment.
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